A TALE OF TECH CITY: THE FUTURE OF INNER EAST ’S DIGITAL ECONOMY

Open Access. Some rights reserved. is a new politically independent, As the publisher of this work, Centre for London wants to encourage the not-for-profit think tank focused on the big policy circulation of our work as widely as possible while retaining the copyright. challenges facing London. It aims to help London We therefore have an open access policy which enables anyone to access our content online without charge. Anyone can download, save, perform build on its long history as a centre of economic, or distribute this work in any format, including translation, without written social, and intellectual innovation, and create a fairer, permission. This is subject to the terms of the Centre for London licence more prosperous, democratic and sustainable city. found at the back of this publication. Its main conditions are: Centre for London acts as a critical friend to · Centre for London and the author(s) are credited London’s leaders and policymakers, and promotes a · This summary and the address www.centreforlondon.co.uk are displayed wider understanding of the challenges facing London. · The text is not altered and is used in full · The work is not resold The Centre develops long term, rigorous and · A copy of the work or link to its use online is sent to Centre for London. radical policy solutions for the capital. It works collaboratively with its supporters, drawing on their You are welcome to ask for permission to use this work for purposes other than those covered by the licence. Centre for London gratefully acknowledges experience and expertise. the work of Creative Commons in inspiring our approach to copyright. Centre for London is incubated by the national To find out more go to www.creativecommons.org. think tank Demos.

This report has been produced with the support of the British Venture Capital Association, British Telecommunications Plc, London & Partners and the Federation of Small Businesses.

Thanks also to our colleagues at Demos.

Published by: Centre for London 2012 © Centre for London. Some rights reserved. Third Floor Magdalen House 136 Tooley Street London, SE1 2TU T: 0845 458 5949 F: 020 7367 4201 [email protected] www.centreforlondon.co.uk

Series design by StudioAparte BIOGRAPHIES Rob Whitehead Rob Whitehead is Deputy Director (Research) at Dr Max Nathan Centre for London. He leads on all research for the Max is a Research Fellow at lse’s Spatial Economics Centre, and was co-author of London’s Calling – Centre Research Centre and at lse Cities, where he works on for London’s inaugural research into social mobility and urban economics and economic development issues. higher education. He completed an urban policy and spatial economics He is a regular commentator on London issues in phd in lse’s Geography Department in 2011 on the local, national and international media. Rob has taught economics of cultural diversity in British cities. at ucl and London Metropolitan universities. Prior to Max has over 12 years’ experience working in think establishing Centre for London he was head of strategy tanks, consultancy and public policy. Most recently, he at the London Development Agency, working on, among worked at the uk Department of Communities and other things, Olympic financing, worklessness and Local Government (dclg) as an esrc-dclg Senior Policy economic policy. Adviser, covering localism, regeneration, innovation and Rob holds an mba from Cranfield University and economic development. em Lyon. Before his immersion in London policy issues In 2005, Max helped set up the Centre for Cities he worked in management roles in the private and not- think tank, where he ran the research programme, and is for-profit sectors in London, Spain, and Latin America. now a member of the Centre’s Research Advisory Board. (@DailyRobbery) (@iammaxnathan)

Emma Vandore An urbanist and writer, Emma has 15 years of political and economic journalism experience. Formerly head of the economic service for the Associated Press in Paris and Bloomberg’s chief political reporter in France, Emma has covered a breadth of industry sectors and political issues. She has worked across the globe, recently focusing on London and West Africa in policy and communications roles for organisations including the Financial Times and the Town and Country Planning Association. Emma has a masters in spatial planning from the Bartlett (ucl), where she specialised in regeneration with a focus on London’s East End and the Olympic Park area. Her publications include the 2007 book on French politics, Schizophrenie Francaise: Sego, Sarko, Jacques et moi. (@emmissima)

4 5 CONTENTS

Acknowledgements 9 Foreword: Ben Hammersley, The Prime Minister’s Ambassador to Tech City 11 Executive summary 15

1. INTRODUCTION 28 2. CITIES AND THE

DIGITAL ECONOMY 38 3. UNDERSTANDING

THE CLUSTER 48 4. VIEWS FROM INNER

EAST LONDON FIRMS 64

5. FUTURE SCENARIOS 90 6. CONCLUSIONS AND

RECOMMENDATIONS 96

Appendix 1/Project Methodology 112 Appendix 2/Defining the digital economy 116 Appendix 3/Datasets 120 Appendix 4/Glossary 124 Notes & References 128/129

7 ACKNOWLEDGEMENTS

We would like to thank all the firms, entrepreneurs, policymakers and other stakeholders who gave up their time to take part in the research. Without their co-operation this project would not have been possible. Many thanks to Charles Armstrong and Craig McMillan at Tech City Map, and Kam Star at Digital , for access to the Tech City Map database; to Dr Duncan Smith at ucl/casa for gis maps; Andrew Connolly at DueDil for access to the Real London Tech StartUps dataset; Richard Welpton and the Secure Data Service for access to bsd and sbs datasets; Eric Van Der Kleij at tcio for his patient input and Ben Hammersley for writing the foreword. Thanks also to everyone who participated in the project roundtable in April 2012, and to participants at a ucl/Bartlett seminar in April for input on early versions of the report. Many thanks to the staff and interns at Centre for London and Demos who helped bring this project to fruition: Roland Chanin-Morris, Kat Hanna, Beatrice Karol Burks, Ben Rogers, Margaux Salmon, Ralph Scott and Jess Tyrrell. Finally, credit is due to Graeme Evans, Chris Orange and Margarethe Theseira for their helpful comments and advice. The views in this report are those solely of the authors. All errors and omissions remain our own. We would like to thank our partners British Venture Capital Association, British Telecommunications Plc, London & Partners and the Federation of Small Businesses for their support for this work. While they have offered advice and expertise, the findings and recommendations in this report are the responsibility of Centre for London alone.

Disclaimer: This work includes analysis based on data from bsd, produced by the Office for National Statistics ons( ) and supplied by the Secure Data Service at the uk Data Archive. The data are Crown copyright and reproduced with the permission of the controller of hmso and Queen’s Printer for Scotland. The use of the ons statistical data in this work does not imply the endorsement of the ons or the Secure Data Service at the uk Data Archive in relation to the interpretation or analysis of the data. This work uses research datasets that may not exactly reproduce National Statistics aggregates. All the outputs have been granted final clearance by the staff of the sds-ukda.

9 FOREWORD

Nowhere but a megacity like London, with its massively diverse, intensely globalised, traditionally innovative population, can really have a chance at succeeding in this most 21st century of revolutions. It is massively to the credit of the Coalition Government that it has noticed, and chosen to nurture, the disruptive forces a few miles to the east of , in the cluster of digital activity the Government has dubbed ‘Tech City’. The Government’s support, both vocal and financial, is a key factor in helping this cluster flourish in these very early years. Of course, for every cheque we need a balance, and that is why reports such as this one are so very welcome. Hype, branding, the promise of a boom or the fear of a bubble will all obscure what is really going on if neutral but in-depth investigations like this are not made and regularly repeated. Indeed, both local and national government policy must be made in the same manner as the products of Tech City itself: iteratively, with constant attention to user feedback. In that way, Tech City policy may never be complete – it may never be possible to say precisely what it is, as if it was a finished, bound, completed thing. Government policy, influenced by reports such as this, should be in perpetual beta. Data driven policy is only as good as the data itself, and so it is with joy that I note this report’s attention to detail. We should all welcome the most comprehensive analysis to date of what and who makes up Tech City, and what it is the entrepreneurs behind the firms say they want from government. Combined with future repeat research – which I urge the authors to consider – we will be able, as policymakers, businesspeople, and academics, to have a much greater, deeper, and more effective understanding of both the potential and the dangers of interventions such as Tech City. Clusters, as the report writes, are not to be made artificially. They cannot be. Instead, they grow and blossom organically from the rich soil of the surrounding

11 city. London is a special place, fertile with creative influences. Tech City is a success, and will grow, not because of the Tech, but because of the City – the humanity, the rubbing together of cultures, the tensions and the beauties therein. There is, yes, work to be done, but we live and work in one of the greatest places on earth, and with help – from everyone who might read this report – Tech City can both feed from and, more importantly, give back to the place we like to call our home.

Ben Hammersley The Prime Minister’s Ambassador to Tech City

12 EXECUTIVE SUMMARY

Since the late 1990s, a vibrant high-tech cluster has been growing in Inner , focused on Shoreditch and . Since 2010 the uk’s Coalition Government has led a high profile drive to accelerate its development – the ‘Tech City’ initiative – taking as a model.

Our ambition is to bring together the creativity and energy of Shoreditch and the incredible possibilities of the Olympic Park to help make East London one of the world’s great technology centres. , November 2010

We believe the Government is right to be ambitious for the uk’s digital economy. The future of advanced economies like Britain lies, in important part, in growing research-intensive, innovative, high-value digital companies. Britain’s digital economy already takes the biggest share of national gdp in the g20, and may increase that share by a third by 2016. As a world city, London is well placed to take advantage of these trends. Digital economy firms tend to cluster in large, skilled, economically diverse, well- connected urban environments – the capital already has the uk’s biggest concentration of digital activity. Inner East London plays an important role in London’s digital ecosystem. Our research demonstrates that a vibrant cluster of small and medium-sized digital businesses has grown in the area. With over 3,200 firms and 48,000 jobs in the area in 2010, we show that the cluster is larger than generally appreciated. This report sets out a road map for the future of the East London tech cluster. We think this is needed. Despite all the attention Tech City has received, we know less than we need to about the inner workings of the cluster. And there has been little independent scrutiny of the policies and initiatives that have been introduced to grow it.

15 The economic significance of East London’s digital Here’s our vision for East London Tech City – economy means it is critical to get public policy right. a hub that stretches from Shoreditch and Old Governments and city leaders all over the world dream Street to the Olympic Park. of creating centres of technological innovation and David Cameron, November 2010 expertise, to rival Silicon Valley and its multi-billion dollar tech giants. So far, however, most of these dreams We think there is much of value in current policies. have not amounted to much. There is certainly no simple We also have some concerns. formula for creating a successful high-tech cluster, let Government Tech City strategy has three related alone a world-beating one. Every high-tech cluster is but distinct aims. First, to foster small and medium size different. The key is finding the right policy mix to businesses in the area; second, to promote international suit local conditions. investment into it; and third, to encourage its spread This report sets out to answer the following eastwards to the Olympic Park and surrounding seven questions: areas, post-2012. The principal agencies tasked with delivering this strategy are London & Partners, Tech 1—How large is the East London cluster and City Investment Organisation and the London Legacy what place does it occupy in London’s larger Development Corporation. digital economy? We argue that policymakers should refocus on supporting the growth of the existing cluster, and 2—What can we say about the digital encouraging the development of high-performing firms. entrepreneurs in the cluster, and the history, size, Efforts to secure international investment into the area age, and focus and financial standing of its firms? need to support this objective, and the evidence shows that where investments are carefully calibrated, based 3—What draws entrepreneurs to the area? What on detailed knowledge of firms in the cluster, and what do they see as its advantages and its drawbacks? is most complementary to their long term development, they can be. Our evidence also suggests that the cluster’s 4—Which factors are facilitating the eastwards growth, although desirable, is likely to be development of firms within the cluster, and limited. Fundamentally, Tech City should be about which issues, if any, are acting as constraints ‘growing our own’. on it? Detailed Findings 5—What can we learn from recent attempts to Our research has three elements. First, we mapped support and promote other digital clusters in the the cluster, tracing its development over time, and us, Europe and beyond? analysing numbers of firms and jobs, and the industry mix. Second, our comparative analysis puts East London 6—How effective are the policies that national, in wider context, drawing on seven international case London and local government have adopted to studies. Third, in our qualitative analysis, we spoke support the cluster? to entrepreneurs in a range of local digital economy businesses, plus a control group from outside the area 7—What could government do further to and a number of experts and stakeholders. We then support it? tested our early findings at a roundtable event.

16 17 International lessons Getting the policy mix right is crucial. Most of We reviewed non-uk clusters including Silicon Valley, the evidence we reviewed suggests that area-level New York’s ‘Silicon Alley’, ‘Cap Digital’ in Paris, Berlin, approaches are less effective than approaches that Tel Aviv’s ‘Silicon Wadi’, and the Malaysian ‘Super focus on firms. Corridor’. These vary in the degree of government involvement – from the ‘hands-on’ approach of Cap Tech City data Digital to the more ‘hands-off’ Berlin. Our extensive analysis of the official data supports the The lessons that emerge are important. Our claim that there is an important and growing cluster of international case studies suggest that in some cases, digital economy firms in Inner East London. We counted government can help stimulate long-term development. over 3200 digital economy firms in the area in 2010, In Silicon Valley, for example, government defence and almost 1600 in three core wards. These figures are contracts – perhaps unintentionally – helped turn a significantly higher than previous estimates yet probably defence industry hotspot into the economic powerhouse understate the true numbers. of today. Silicon Wadi has a similar dynamic, with the However, the cluster has not grown consistently Israeli military playing a number of important roles. year-on-year. Inner East London’s share of digital But our evidence also tells us that artificially economy employment did grow steadily to 2005, but has generating clusters in mature industries – as digital remained static since then. Our research also highlights content and ict now are – is very difficult. London its vulnerability to the ill economic winds that have and its local hotspots have momentum, but face sharp been blowing since the financial crisis of2008 . competition from older clusters and fast developing ones. Even with generous public support, these complex About the Entrepreneurs ecosystems of firms take many years to evolve and grow. Our interviewees were overwhelmingly male, white, British and highly educated. Most were in their thirties. The firms that they own and run were typically micro-

Figure 1: Digital economy employment shares 1997–2010 businesses (under 10 staff) and most were less than five Source: BSD/Secure Data Service years old. Over a third of all firms had an international 20% structure of some kind. This is what they told us. UK % digital economy Inner East London % digital economy % digital economy Location 15% Being located in Inner East London has a number of advantages for firms: cheap rents, accessibility to the rest of London, proximity to like-minded firms, amenities 10% and ‘vibe’. Inner East London is very central, offers many night- time attractions, and so is highly attractive to the type 5% of staff that digital businesses want to secure and retain – typically cool, creative, tech-savvy young urbanites. But there are concerns that rising rents may disrupt the 0 cluster. Other downsides were mentioned, notably grime 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 and crime, but did not feature strongly.

18 19 We identified seven main areas of concern: 6—Business development Although there were many success stories, we 1—Skills gaps found surprisingly little appetite for developing firms Many interviewees are worried by the problems of into global players. This may indicate the cluster’s finding skilled staff. Some claim there is an under- existing entrepreneurs are better at having ideas supply of skilled developers and specialist staff in than converting start-ups into mature businesses. the uk. They blame ill-designed university syllabuses, For more world-beating firms to emerge, more of and a lack of understanding at all levels of the them will need help and support from experienced education system. Visa restrictions on non-eu staff managers adept at expanding businesses. also cause concern. 7—Tech City Strategy 2—Access to finance Many interviewees welcomed the high-profile Although accessing finance is a difficulty for some Government efforts to support the cluster, even if of the firms in our sample, it is far from being the most of them knew little of their detailed nature. But biggest concern overall. Some entrepreneurs were some firms and stakeholders expressed concerns that critical of the apparent lack of understanding of the the three-pronged Tech City strategy – cultivating the digital sector among financiers. cluster, promoting international investment into it, and encouraging its spread to the Olympic Park – 3—Workspace, access and cost is muddled, and potentially counterproductive. The inevitable paradox of success is the rising in cost We also found frustrations with specific policies. of popular neighbourhoods. Cheap workspace is still a big draw to the area, but many interviewees were Scenarios worried about finding office space in the future and We set out four possible futures for Tech City. Our aim in that rising rents are pushing start-ups out. doing this is to clarify thinking about what we want from the cluster, the forces driving change, and what policy can 4—Connectivity realistically hope to achieve. Around a third of interviews mention connectivity issues as constraints to business. This is both in terms Scenario 1: Go East of reliability and speed and broadband connection The cluster continues to add jobs and firms, with times. more firms expanding internationally and achieving global success. Large digital firms move to new 5—Mentoring and management skills sites further east in the Olympic Park and environs, Our interviews often uncovered a strong demand creating a new digital hotspot. for mentoring, and help with growing the firm – but many companies had trouble accessing this advice Scenario 2: Upgrade in the neighbourhood. By contrast, in established The cluster continues to add jobs and firms, with clusters like Silicon Valley, there are extensive more firms expanding internationally and achieving professional networks for new firms to turn to, and global success. Some digital firms locate in the angel / vc investors often have deep backgrounds in Olympic Park and environs but far fewer than founding and growing digital businesses. hoped for.

20 21 Scenario 3: Corporate Takeover employers and workers to the Olympic Park The area gradually morphs into a version of the and its surrounding areas, where it distracts from Square Mile, with large firms in finance and more the primary aim of helping smes and nurturing non-digital business services dominating. The digital entrepreneurs. cluster gradually disperses. Recommendations: Recruitment Scenario 4: Decline 4—Government speeds up Tier 2 processing – The area’s firms fail to develop successful products raising the target time from the current 75% and services: no global players emerge, and the in four weeks or less, to 100%; cluster’s star wanes, outshone by other areas and cities. 5—tcio develops a role as ‘immigration intermediary’ for London smes – helping them Clearly, the eastward growth of the cluster, as envisioned understand and move through the system – in scenario 1, is an attractive one, so it is not surprising building on existing activity; that government strategy is aimed at trying to realise it. Our view, however, is that the odds are against it. 6—Government re-instates two-year post-study By contrast, we think scenario two, which is also a work visas for post-graduate in stem subjects; highly attractive scenario, could plausibly come about – indeed, we think that the cluster is already moving in 7—tcio helps expand Silicon Milk Roundabout, that direction – and that Tech City strategy should focus the Skills Showcase and other digital economy on helping to realise this scenario. What does this mean recruitment fairs, working closely with universities in practice? We offer these detailed recommendations. and local businesses;

Building on current Tech City strategy, we recommend: 8—Local training providers should pilot and evaluate Tech City Apprenticeships and similar Recommendations: Strategy intermediary projects. 1—Government and the gla should review and clarify the objectives of Tech City strategy. The main Recommendations: Entrepreneurship aim of Tech City strategy should be to support the 9—tcio should expand the annual Entrepreneurs’ growth of digital economy smes and nurture new Festival – from the current number of 200 entrepreneurs in the existing cluster; participants to at least 500 participants; and support business development competitions with London 2—The Tech City Investment Organisation’s inward universities, drawing on mit’s MassChallenge and investment activities should be focused on attracting similar ventures; complementary investments and the agency should boost its export promotion activities for 10—tcio should monitor and publish take-up of London firms. the Entrepreneur Visa in London; and tcio and Government should monitor the performance of 3—Government, the gla, London & Partners and the Start Up Chile programme, and consider tcio should temper their efforts to attract digital developing a uk version.

22 23 Recommendations: Access to finance Recommendations: Workspace 11—Physical relocation of angels and venture 19—Local authorities ensure Local Plans explicitly capital firms into Inner East London – for encourage the provision of affordable and shared example, by introducing ‘finance desks’ in workspace, supplementing National Planning shared workspaces; Policy Framework clauses on change of use;

12—Banks should develop specialist digital 20—Local and central government explore the economy offerings, covering both day to day potential for converting empty buildings that they banking and debt finance, as well as links to own in East London into workspaces, tendering legal and accounting services; management to professional shared space providers;

13—Expanding existing online / physical 21—Government should encourage the provision networks for digital firms and finance providers – of affordable workspace. This could involve for instance, starting up a dedicated uk modifying the existing Business Increase Bonus AngelList; scheme – giving an additional subsidy when planning permissions for affordable space are granted. 14—Government should develop a second digital-focused Enterprise Capital Fund, and Recommendations: Mentoring and management advice increasing public investment into both funds 22—Inner East London’s existing professional to take the pot to £150m each; networks should actively develop mentoring activities and meetups for younger firms; 15—Government should develop a clear legal framework for equity crowd-funding, drawing 23—The Tech City Investment Organisation on us legislation and experience. should provide financial/in-kind support building on its existing Mentorship Programme. Recommendations: Connectivity 16—isps should try to guarantee a two-week Recommendations: Governance connection time, where cabling and landlord 24—tcio becomes a quasi-independent agency permissions allow; with its own budget, with its main goal being to help start-ups and smes in the area. tcio should report 17—Workspace providers should consider jointly to Number 10 and the gla; integrating broadband into their basic rental packages, or include permission for connection 25—tcio should expand its efforts to help smes within lease agreements; with key issues including mentoring, immigration/ recruitment support, access to finance, connectivity 18—gla monitors connectivity in Inner East and export promotion; London and other digital hotspots in the city and seeks to ensure (possibly using the Urban 26—Number 10 and the gla should assess the Broadband Fund) that they have a rich network effectiveness of Tech City policies – for example, of wifi and4g transmitters. the effect of winning the LaunchPad competition

24 25 on company performance, takeup of the Enterprise Investment Scheme and the Seed Enterprise Investment Scheme, and the role of shared workspace on start-ups’ growth;

27—tcio should closely monitor developments in New York and develop links with policymakers there.

26 Since the late 1990s, a vibrant high-tech cluster has been growing in Inner East London. The Government’s ‘Tech City’ strategy is a high-profile drive to grow the cluster. 1 This report explores the development of Inner East London’s high tech firms, sets out what we suggest is the best achievable future for the cluster, and makes a series INTRODUCTION of detailed policy recommendations. 1.1: What is ‘Tech City’? The story begins in November 2010, with David Cameron’s speech to East London technology firms (Cameron, 2010). Hailing the buzz of the Shoreditch area, in Inner East London, and drawing heavily on the imagery of Silicon Valley, the Prime Minister set out an ambitious agenda to develop Inner East London into ‘one of the world’s great technology centres’.

The Tech City strategy is about:

• Supporting the cluster of start-ups and small and medium-sized businesses (smes) clustered around the ; • Attracting large international investors; and • Using this momentum to steer high-tech activity further east, including into a post-Games Olympic Park.

Underneath this strategy is an increasingly long list of policies that affect digital entrepreneurs, including an Entrepreneur Visa, cheaper finance for smes, tax breaks for seed funding, venture capital and video games, a fast broadband fund, and the LaunchPad competition for digital firms (Department for Business Innovation and Skills, 2010; hm Treasury, 2012; Technology Strategy “OUR AMBITION IS TO BRING TOGETHER THE CREATIVITY AND Board, 2011). ENERGY OF SHOREDITCH AND THE INCREDIBLE POSSIBILITIES OF THE OLYMPIC PARK TO HELP MAKE EAST LONDON ONE OF Key national policies relevant to Tech City include: THE WORLD’S GREAT TECHNOLOGY CENTRES.” Mentoring and advice—the bis national David Cameron, November 2010 business mentoring scheme, and the new

29 £200m Growth Challenge business advice Finance—doubling Entrepreneurs’ Relief scheme; to £10m; a number of early-stage finance initiatives, including doubling the limit for the Enterprise Skills—the Entrepreneur Visa, for individuals Investment Scheme to £1m, the Seed Enterprise outside the eea with a business idea and at Investment Scheme offering 50% tax relief on least £50k committed funding; seed investments up to £100–150k, and the Angel CoFund, with £50m of Regional Growth Fund money for early-stage finance; a £100m case study 1: Silicon Valley, Bay Area fund to explore crowd-funding and mezzanine Silicon Valley is the world’s leading, and best-known high-tech region. It is a city- finance forsme s; the Technology Strategy Board’s region running the length of the Santa Clara Valley in the Southern San Francisco LaunchPad competition, with £200m of matched Bay Area, from San Jose in the South to parts of San Francisco in the North (Joint funding for 20 winning companies, and additional Venture Silicon Valley, 2012). The Valley needs to be seen as part of the large Bay ‘public vc’ for the digital economy and other Area system: it draws large commuter flows from San Francisco and the East Bay, sciences, including £200m for Enterprise Capital and its high-tech firms have links to key players in the ‘City’, such as Adobe, as well Funds and £150m for the uk Innovation as to uc Berkeley across the San Francisco Bay. Investment Fund; Geographically and historically, the Valley is very different from London: an agricultural area until the 1940s, it remains a low-density zone, with a number of Workspace—the Government will make empty small cities and towns peppered with industrial estates, and linked by freeways and public buildings available for entrepreneurs to use the Caltrain commuter line. as start-up premises; Silicon Valley’s history is well-known: from post-wwii roots in military tech- nology, through the emergence of the semi-conductor industry in the 1960s and Connectivity—a £100m high-speed broadband fund 1970s, software in the 1980s, and the internet in the 1990s and 2000s (Block & for ten ‘super-connected cities’, including London; Keller, 2011; Markoff, 2005). Large military contracts and entrepreneurial academ- ics, particularly in Stanford, have helped support the growth of high-tech firms: Business development—the launch of the the Stanford Industrial Park was the world’s first. However, the Valley’s industrial Government Digital Service, and the shift to ‘digital system and culture has largely evolved organically, with little deliberate public sec- by default’ platforms for transactional services tor involvement (Saxenian, 1994). Dense social networks, open labour markets, by 2015. large immigrant communities, especially from South and East Asia, have helped the Valley’s firms globalise production and access new markets and ideas (Kerr, A number of developments have also been initiated at 2009; Saxenian, 2006). The Valley’s growth has fed on itself, helping create a vast London level. These include: agglomeration of firms, talent and finance in the region. The industrial mix is di- verse: always strong on hardware, a new generation of digital content firms have Mentoring and advice—the gla has supported now also emerged. White Horse Capital’s Accelerator Academy, as With over 22 local administrations in the Valley, the South Bay system is ‘un- well as access to finance initiatives such as City der-governed’, with private sector-led groups like Joint Venture: Silicon Valley tak- Meets Tech; ing on public leadership and advocacy roles (Nathan, Rode, & von Streit, 2011). With the squeeze on California’s public finances, and the rise of other tech clusters Skills—it apprenticeships in London have doubled in the us and internationally, there are now some worries that the Valley might lose between 2009/10 and 2010/11; some of its international lead in the long term.

30 31 Business development – the gla’s London When people ask: give me an example of the Datastore has boosted Open Data in the city; Government’s industrial strategy I say this: we London & Partners helped 130 digital companies want nothing less than to make the uk the technology to invest in 2011; centre of Europe … Tech City [is] at the heart of this ambition. George Osborne, March 2012 Olympic developments—such as the Incubator, the Cisco-ucl-Imperial Future In fact, the Inner East London digital cluster has been Cities Centre and the Olympic Media Centre around for many years, with roots extending back past competition. the first dot-com boom to the mid-1990s. The ‘City Fringe’, as it was then known, was already developing a Eighteen months later, the stakes for the Tech City reputation as a neighbourhood combining creative and initiative are even higher. In a speech to launch business service activities with firms deploying nascent Campus – a new building south of Shoreditch, providing digital technologies (Cities Institute, 2011). Our research shared workspace and services to tech start-ups – the shows that the Inner East London hot zone centred on Chancellor of the Exchequer, George Osborne, heralded Clerkenwell and Hoxton is part of a corridor of high-tech the Government’s Tech City initiative as integral to the activity across inner London – and the most distinctive Coalition’s entire growth strategy: of many tech hotspots in the capital. And as our analysis makes clear, the cluster grew substantially – but quietly – until the middle of the noughties. Then in summer 2008, the ft ran a diary piece on ‘Silicon Roundabout’, and the secret was out (Bradshaw, 2008).

Figure 2: Where is Inner East London? 1.2: Why does Tech City matter? The Prime Minister and Chancellor are right to be Greater London showing excited. Our analysis confirms, for the first time, the Inner East London area real significance of the Inner East London cluster. Inner East London is an important hotspot, with a large and growing share of London’s digital economy. The area has at least 3,200 tech firms, and over1,500 in Clerkenwell, Hoxton and Haggerston alone – double the count in 1997. The business base now includes global players like

Key: MindCandy, Unruly Media, Songkick and Last.fm. The

Inner East London cluster also contains over 48,500 digital economy jobs,

The Core Wards increasing its share of London’s tech employment by a third since 1997 – and in 2010, continued to gain jobs Olympic Park while digital economy employment in the rest of London fell. The City We argue that the Inner East London hotspot – and The West End London’s digital economy as a whole – is important for London’s economic fortunes. The digital economy is

32 33 characterised by high-wage, high-skill, labour-intensive weak, London’s economy is performing relatively well. activity. High-value digital economy jobs have a As existing firms grow, and new businesses appear, this multiplier effect, supporting employment elsewhere. should trigger further waves of interest from investors Digital economy activity is also physically clustered, in and new entrepreneurs. In the property market, prices large part because big, economically diverse cities like are already starting to rise, and this may displace some London help firms like these develop new ideas and new existing firms; but new sites will also become available, ways of doing things. In other words, London benefits notably in Hackney Wick, Stratford, and the Broadcast from a bigger digital economy, and digital economy and Media Centres in the Olympic Park. businesses need cities like London to grow. Of course we’re not the only people to look at Tech The digital economy also matters for the uk as City. The Tech City Investment Organisation has recently a whole. Britain’s digital economy already takes the released their own first-year impact assessment (Tech biggest share of national gdp in the g20, and is projected City Investment Organisation, 2012). And a number to increase that share by a third by 2016 (Dean et al., of others have put out early assessments of Tech City 2012). As the uk’s digital economy ‘leader’, London’s potential (bop, Consulting InPlace, & FutureCity, 2011; experiences today may, in turn, hold lessons for other Cities Institute, 2011; McKinsey, 2011), including two cities in the future. authors of this report (Nathan, 2011; Vandore, 2011). Our research builds on these contributions, and aims What we’ve got here is fine. Don’t f**k it up. to address two key issues. Inner East London entrepreneur, February 2011 (s8) First, there’s still a knowledge gap about Inner East London’s digital economy. We need to know about The economic significance of East London’s digital the area’s industrial mix, its ecosystem of firms and economy means it is critical to get public policy right. entrepreneurs, their reasons for being in the area, and Understandably, some people worry that since the the opportunities and constraints they face. These issues cluster has grown organically for many years, outside matter, because it is firms that are the building blocks intervention now could damage or even kill it. Certainly, of clusters – and there is still little evidence on how the the history of traditional, area-based cluster policies – Inner East London system works at street level. We also such as science parks and official innovation districts – is need to identify what’s unusual and unique in London, not encouraging (Duranton, 2011; Maeir & Trippl, 2012). and to distinguish it from other high-tech hotspots In principle, policies that are tailored to the local context, around the world. This report will present an unvarnished work with firms and with the wider ‘ecosystem’, can help picture of the cluster, its successes and failures. To do clusters to develop, and high-performing companies to this we draw on international comparative research, new grow (Bresnahan & Gambardella, 2004). But every high- quantitative analysis and in-depth interviews with East tech cluster is different. The key is finding the right policy London firms. mix to suit local conditions – and to avoid messing Second, there is also a policy gap. There has been a things up. great deal of Tech City policy activity since November 2010, and the initiative is welcomed by many firms on 1.3: Why this report? the ground. But our research shows that many of those Now is a good time to take stock of Inner East London’s involved in the cluster feel there is still a lack of clarity digital economy, and how the Tech City strategy is on the overall strategy, its priorities, and on ownership of working in practice.1 While the uk economy remains that strategy. This report will present some new thinking

34 35 on how the approach should evolve. To do this we develop four scenarios, setting out possible futures for the cluster and its firms. By comparing the most likely outcomes with current objectives, we identify a number of areas where strategy, policy and delivery arrangements could productively change. The report is structured as follows. Chapter 2 explains why developing the digital economy matters, for London and for the uk. It then reviews the evidence on how clusters form and grow, and explores the kind of policies most likely to support high-performing firms. Chapter 3 places London in international context, drawing on seven case studies. It then maps and traces East London’s digital economy in detail, using rich microdata to explore physical geographies, firm and employment growth, and industrial mix. Building on this, Chapter 4 reports the key findings to emerge from our detailed conversations with Inner East London digital entrepreneurs, policymakers and other stakeholders. Chapter 5 combines our research findings to explore four possible futures for the area. We assess the most likely scenarios, and compare these to current policy objectives. Concluding, Chapter 6 makes recommendations for national and local policymakers, as well as for private sector stakeholders. We assess the current strategic approach, as well as the detailed policy mix. We suggest a reformed vision for ‘Tech City’, and suggest improvements to specific policies and delivery arrangements. Appendices 1– 3 cover the project methodology, digital economy definitions and codes, and give details on our main data sources. Appendix 4 provides a glossary of key terms.

36 This section defines some key terms, and explains the growing importance of the digital economy to London and the uk. Cities like London are natural homes for 2 digital economy activities; in turn, digital economy clusters have important economic benefits. Policymakers can act to help digital economy clusters grow – but need CITIES to work with both firms and the wider ‘ecosystem’. 2.1: Definitions ‘Technology’, ‘tech’, ‘ict’ and ‘digital’ are often used interchangeably. But they’re not equivalents, and AND THE their differences need to be understood. Our working definition of the ‘tech sector’ is the ‘digital economy’, as set out by the uk Government (Department for Business Innovation and Skills, Department for Culture Media and Sport, & Intellectual Property Office, 2010). DIGITAL The digital economy has two components. The first of these is information and communications technology (ict), which encompasses systems (like broadband networks), hardware (computers and servers), software, ECONOMY and services (like sales, installation and maintenance). The second component is ‘digital content’, encompassing activities like publishing, advertising, design, music and broadcast media. A full list of included activities is given in Appendix 2. This is a broad definition of ‘tech’, but we argue that casting the digital net wide makes sense. Many digital content sectors have become increasingly digitised in recent years, as technology has improved, and media content has moved online. The result has been the emergence of ‘creative digital’ firms – which typically offer multiple, ‘real’ and digital platforms for creative and business service activities (Cities Institute, 2011). Many of the companies we talked to in East London fall into this category: much of what they do is digital, but they struggle to describe themselves as ‘tech’ firms in the traditional sense – see Chapter 4 for examples.

2.2: Why is the digital economy important? The growing importance of the digital economy for

39 the uk – and for cities like London – is well explained profound implications for cities. In short, cities are the by exploring the geographies of globalisation and new natural home for much of this activity – especially big technology. International economic integration, better cities like London. technology and cheaper transport costs have helped Why is this? Cities offer ‘agglomeration shift an increasing share of manufacturing activity economies’ that help firms become more productive. into low-cost locations around the world. From a long- These advantages include a critical mass of workers term perspective, the most valuable sectors are in what and infrastructure, and rich networks of suppliers and economist Enrico Moretti dubs ‘the innovation economy’, collaborators – for tech firms these might include where high-skill activity and high-wage employment are venture capital and angel finance, specialist law firms concentrated (Moretti, 2012). This includes high-tech and accountants. Most importantly, cities help new ideas manufacturing, science and engineering, some financial to form and flow, so that firms and workers can learn services, parts of the creative economy – and the whole from each other. of the digital economy. These benefits are particularly important for digital Overall, the growth of the ‘innovation economy’ economy firms, where sharing the same neighbourhood – (or knowledge economy, if you prefer) is good for the uk. Innovation is a critical factor shaping long-term national economic development (Schumpeter, 1962). case study 2: Silicon Alley, nyc New ideas, as embodied in human capital and research New York City’s ‘Silicon Alley’ is the digital hub that looks and feels closest to In- and development, are foundational conditions for ner East London. Both are high-density inner urban neighbourhoods, so that tech growth (Lucas, 1988; Romer, 1990). As a force of creative firms are only a short walk, bike or subway ride away from each other. Silicon Alley destruction and wealth generation, the internet is an was originally a well-defined corridor in lower Manhattan along Broadway, from ever more powerful innovation – the latest evidence the Flatiron District up to SoHo; as in London, the cluster is starting to spread suggests it creates over twice as many jobs as it removes south into the financial district. Like London, New York’s digital firms often have (Economist, 2012; Moretti, 2012). These forces are close links to the media, fashion and design sectors – whose firms are often located particularly critical for the uk. A recent study by Boston nearby. Digital media has been the fastest-growing segment of the nyc scene, with Consulting Group finds that Britain’s digital economy at least 121 start-ups funded in the last five years (Bowles & Giles, 2012). As the already takes the biggest share of national gdp in the scene has grown, money has followed: New York is the only us tech scene to see g20, and could increase that share by a third in years to a rise in vc deals between 2007 and 2011, although the city’s vc pot is still a lot come (Dean et al., 2012). smaller than Silicon Valley. Employment in ‘high-tech sectors’ has also risen by Most importantly, the ‘innovation economy’ has over 90,000 between 2005 and 2010 (Bowles & Giles, 2012). substantial multiplier effects. In the us, Moretti estimates Mayor Michael Bloomberg – himself an ex-technology entrepreneur – has that each innovation economy job supports up to five made the development of ‘New Tech City’ a key legacy project. The nyc Entre- jobs elsewhere – in other professional sectors and in preneurial Fund matches $3m of public money with $19m from a local vc firm; the service sector. These halo effects are large because the city also provides support for workspace, mentoring and networking services. sectors like the digital economy are labour-intensive, Bloomberg has also donated a two million square foot site on Roosevelt Island for well-paid, and tend to cluster – amplifying the benefits a new applied science and engineering campus, to be built by Cornell University for those cities with clusters of innovation jobs. and Technion-Israel Institute of Technology. Officials suggest this may deliver up to $7.5bn of value to the city in the next 30 years, including 600 new firms and30,000 2.3: Cities and the digital economy new jobs. A second campus, the Centre for Urban Science and Progress in down- The emergence of the ‘innovation economy’ has town Brooklyn, was announced in April 2012.

40 41 or the same building – may generate a vital spark. of ideas (Breschi & Lissoni, 2009; Singh, 2005). These Studies suggest spillovers are very localised, and factors are particularly important in industries – like the innovative activity clustered in and within urban areas digital economy – with a lot of small firms and compete- (Audretsch & Feldman, 1996; Bettencourt, Lobo, collaborate relationships (Currid, 2007). The history Helbing, Kühnert, & West, 2007; Jaffe, Trajtenberg, & of Silicon Valley demonstrates the critical importance Henderson, 1993). Economist Alfred Marshall famously of these networks, and the role of large urban actors explains how in cities, ‘the mysteries of trade are … – such as universities and professional organisations in the air’ (Marshall, 1918). – in forging links (Bresnitz & Taylor, 2011; Markoff, The urbanist Jane Jacobs suggests knowledge 2005; Saxenian, 1994). Universities are one of the city’s spillovers work across industries, as well as within them most valuable public assets, and can potentially play a (Jacobs, 1969). Big, economically diverse cities like number of roles in helping London’s digital economy London actively help one part of the economy to cross- – in providing skilled graduates and encouraging spin- pollinate others. Such cities are thus ‘nurseries’ for out firms (Swinney, 2011). Research suggests that the start-ups and smes, as new firms can draw on a range physical proximity of universities to firms is an important of technologies and perspectives (Duranton & Puga, enabling factor (Abramovsky & Simpson, 2011; D’Este 2001). us and uk evidence suggests that Jacobs was & Iammarino, 2010). right: while localisation matters, knowledge spillovers Most importantly, agglomeration economies are are mainly about the mix (Glaeser, 2011; Glaeser, Kallal, self-reinforcing (Glaeser, 2011). These dynamic effects Scheinkmann, & Shleifer, 1992; Overman, Gibbons, & operate through a number of channels. For example, the Tucci, 2009). agglomeration effects in large, diverse cities – particularly Recent work also suggests that knowledge spillovers the presence of skilled workers – help firms generate and aren’t just about geographical proximity – rather, local adopt new technologies. And large, diverse cities are well networks play critical roles in influencing the local flow placed to resist external ‘shocks’ that might knock out part of the urban economy. case study 3: Berlin 2.4 Can policy help? Berlin ‘feels like Old Street did in 2006’, according to one of our interviewees. Doesn’t all of this suggest that there’s no need for Since re-unification, the city’s low wages, cheap rents, large flats and vibrant cultur- Tech City-type interventions? In economists’ models, al scene have proved a powerful draw for artists and creative industries startups. urban systems automatically adjust towards ‘spatial The German capital is now starting to make a name for itself as a technology cen- equilibrium’, where all actors are indifferent between tre with high-profile firms as SoundCloud, Wooga, 9flats and Phonedeck (Palmer, locations in urban space (Glaeser, 2008). Of course, it 2011). Berlin has particular strengths in digital content, especially in linking digital is true that in reality we know that firms and workers platforms to art, music and games. Between 2000 and 2006, the software, games may make bad choices, face information or financial and telecoms sector saw a 113% rise in companies, to 2900 firms (Berlin Project constraints on moving, or have to handle other co- Future, 2008). Since 2008, 1300 internet startups were founded, up from 500 in ordination problems. Given the productivity payoffs 2011 (Winter, 2012). However, the scene is still nascent: SoundCloud and Phoned- from agglomeration, there is then a welfare case for eck were both founded by the same entrepreneur, Christophe Maier (Wiesmann, policies that try to foster clustering (Helmers, 2010). 2012). Berlin is on the other side of the country from Germany’s financial centres, Digital economy businesses need cities like London meaning sources of finance are still poor, and Germany’s vc community tends to to grow – and London should benefit from a bigger be risk-averse. digital economy.

42 43 At this point many policymakers reach for the traditional policymakers need to do everything to remove or cluster playbook, and deploy conventional area-level reduce these barriers. interventions. These are typically physical or planning The second area for intervention is the wider programmes – building a new science park, or zoning a ‘innovation ecosystem’ that companies operate in – neighbourhood as an ‘innovation district’. But this kind the key institutions and the key social, legal and local of approach rarely works – a recent review by Van Der conditions that influence, help or hold back ideas and Linde (2003) found only one successful example out of firms (Asheim & Gertler,2005 ; Cooke, Urange, & several hundred. As Duranton (2011) explains, a physical Extebarria, 1997; Freeman, 1987; Storper, 1997). Acs cluster is the outcome of what entrepreneurs, firms and et al (2004) urge policymakers to identify ‘knowledge workers do. Because the cluster is an emergent property filters’ – blockages in the innovation system, such of all these interactions, it is very difficult to make policy as unhelpful intellectual property frameworks or an at cluster level: a better approach is to focus on the firms undersupply of early-stage finance. It’s hard to promote and people within it (Feldman, 2012; Wadhwa, 2010). innovation directly – but policymakers can influence This firm-level approach has two crucial differences the wider conditions (Ennis & Kozdras, 2011; to traditional strategies. It is based on understanding the Mazzucato, 2011). firms inside a cluster and their needs. This information Promoting foreign direct investment (fdi) is is then used to develop a suite of policies, which potentially a third point of intervention. In theory, may include encouraging entrepreneurship, building fdi might act as a complement to policies aimed at workforce skills and management capacity, and helping developing domestic firms. For instance, knowledge firms forge international links – as well as a workspace might spill over from entrants to local firms, or local component (Bresnahan & Gambardella, 2004). firms might benefit from supply chain relationships In turn, this suggests two main points of focus for with entrants. Conversely, fdi might lead to greater policymakers. The first is encouraging entrepreneurship. competition, and lead to some domestic firms going out Entrepreneurs promote economic channels in several of business (Markusen & Venables, 1999). If the aim of ways. Start-ups and young firms are innovation policy is to grow a domestic industry, as Ministers have agents, bringing new and often disruptive ideas to the set out, such an outcome is not optimal. marketplace, even as many of them fail (Schumpeter, In practice, it is not easy to work out which of 1962, Ericson & Pakes, 1992). Start-ups and young firms these effects is strongest. A number of studies looking also play important roles in job creation. Evidence at countries and industries suggest positive spillovers suggests it is not small firms per se who are the key from fdi, but few of these can identify causal effects job creators, but young firms who enter periods of (Javorcik, 2004). Many studies are also from developing rapid growth (Haltiwanger, Jarmin, & Miranda, 2010). countries, where local conditions are very different from In the uk, for example, around six per cent of firms – the uk. The most robust evidence uses ‘microdata’ for predominantly young, high performers – are responsible panels of individual firms (Aitken, Harrison, & Lipsey, for the vast bulk of recent employment growth (nesta, 1996; Aitken & Harrison, 1999). A recent review of 2010). Lee (2012) identifies a number of barriers holding twelve such studies in developed countries found mixed back high-growth firms in the uk: in particular, obtaining evidence, with less than half showing positive spillover finance, recruiting suitable staff, managerial capacity and effects from fdi (Görg & Greenaway, 2004). A key study availability/cost of workspace. Our interviews highlight suggests spillovers operate mainly through supply chain all of these issues (see Chapter 4) and it is clear that relationships (Javorcik, 2004).

44 45 There seem to be a number of critical mediating factors. First, ownership structure matters. Javorcik (2004)finds good evidence of spillovers for jointly owned domestic and foreign firms, but not from wholly foreign-owned investments. Second, the type of fdi matters – investments which are complementary are more likely to have spillover effects. In this case, that means technology-intensive activities (such as r&d labs) or support services (such as finance). Third, there are sectoral differences – the biggest spillover effects come from manufacturing, and we have fairly little evidence for sectors like digital content. Fourth, critically, local firms’ ‘absorptive capacity’ matters – that is, whether they have the human capital and managerial skills to benefit from new ideas, and to compete effectively (Meyer & Sinani, 2009). All of this suggests there are potentially important roles for fdi in a Tech City type strategy. But it needs to be carefully calibrated, based on detailed knowledge of firms in the cluster, and what is most complementary to their long-term development.

46 This chapter brings the Inner East London cluster into focus. First, we look at the comparative context, drawing on seven international case studies. Next, we analyse the 3 cluster in detail, using rich microdata to explore physical geographies, firm and employment growth, and industrial mix.

UNDER- 3.1: International context The uk’s digital economy is clustered in London. The city has nearly 24% of British jobs in computer and related activities, and 22% of telecommunications jobs; STANDING for digital content, the figures are even higher (Theseira, 2012). As our primary research shows, Inner East London’s digital firms are closely related to both financial and business services, and to London’s creative industries. Inner East London and other digital hotspots have also THE emerged organically within London’s neighbourhood fabric, rather than being planned ‘innovation zones’.

CLUSTER case study 4: Cap Digital, Paris Paris is home to the Cap Digital ‘Pôle de Compétitivité’, one of France’s 71 official ‘competitiveness clusters’. The Poles are designed to encourage sectors considered to be a source of future growth and jobs. Cap Digital includes 20 large firms, 620 smes, 50 research centres and 10 capital investors; the companies cover a range of digital content sectors, as well as robotics and digital design. Run as a non-profit association, Cap Digital approves new member firms ac- cording to strict quality and expertise criteria. The management encourage col- laboration, both within the cluster and with other clusters across the country and beyond. Compared with London and our us case studies, public support is gener- ous: in the past four years 350 projects have been awarded €650m, of which €300m is public money. The success of this top-down approach is not easy to judge. An official study by Boston Consulting Group and cm International of the national Poles policy suggested over half the Poles had ‘achieved their objectives’, although these were not specified (Boston Consulting Group & cm International, 2008). Cap Digital itself is clearly large, and active. Cap Digital’s own data suggest that across the Ile de France city region, 423,000 people are employed in the ict sector. This includes a number of other hotspots outside the official cluster, including ‘Silicon Sentier’ in the Sentier district of Paris, a former textiles neighbourhood (Halbert, 2011).

49 London is also distinctive internationally: it is a global up culture have been accelerated by (sometimes city, and its digital economy needs to be understood in unintended) non-market actions – in these cases, that context. To help do this, we conducted a number of defence research, military spending and activist case studies. These are set out in boxes throughout the universities. report. We categorise our case studies in three groups, according to the role government has played: Hands-off – New York City and Berlin have both emerged very much organically, with little active Hands-on – Cap Digital in Paris, Santiago in Chile, government involvement. In New York this picture and the Malaysian Multimedia Super Corridor (msc), is now changing rapidly, with the city government are Government-generated clusters created through developing a number of physical tech mega-projects, a ‘hands-on’ policy approach. Cap Digital and the and leveraging large amounts of private venture msc are run on traditional cluster policy lines, with capital. New York’s tech scene, then, is shifting from demarcated physical zones and strict membership hands-off towards hands-on. criteria. The Chilean model is bottom-up, where the main aim is to attract a critical mass Our survey holds a number of lessons for uk and London of human capital. policymakers. First, London’s digital economy is unusual in international terms – and importantly, very different Hidden hand – Both Silicon Valley and Israel’s from Silicon Valley. But it is not unique – Silicon Alley, ‘Silicon Wadi’ represent a ‘hidden hand’ approach, New York’s digital cluster, shares Inner East London’s where private sector entrepreneurship and a start- inner urban location, digital content focus, links into

Figure 3: Original Silicon Roundabout Figure 4: Wired re-edit Source: Biddulph, in Cities Institute (2011) Source: Wired UK, in Cities Institute (2011)

50 51 the wider city’s knowledge economy, and place in covering 15 firms around the Old St hub (Bradshaw, policy masterplans. It is New York, not the Bay Area, 2008). The second is Wired’s re-edit, which counted 42 that London’s leaders should be watching most closely. firms (Wired uk, 2010). More recently, Tech City Map Second, international experience confirms that there is and PlayGen have developed a ‘live’ mapping of over no single recipe for helping a successful high-tech cluster 1100 digital economy firms, tracing tweets and other develop. Although some of the projects we study are in relational activity.2 We can also add the map of ‘real tech the early stages, the analysis suggests that in the right startups’ developed by DueDil and TechHub, which local context, both hands-off and hands-on approaches locates 107 ict firms under10 years old in ec1 and could work. Third, clusters are hard to magic into being. surrounds (DueDil & TechHub, 2011). Even with very generous public support, these complex Together, these maps suggest exponential business ecosystems take many years to evolve and grow. growth, an increasingly dense set of companies, and ever- richer interconnections between them. But this is not the 3.2: Foundations whole picture. First, if we’re interested in the resilience For most people, the Inner East London digital cluster of the area, other metrics matter – notably employment, is centred on Old Street roundabout. From here it runs turnover and profits. Second, the Inner East London North into Hoxton and Haggerston, south to the City, hotspot is not static, and has no fixed borders – focusing west into Farringdon and City Road, and east towards on the Old St core may miss change around the margins. Bethnal Green. A few ‘foundational geographies’ have Third, few of these surveys are designed to be shaped this (Cities Institute, 2011). The first is Matt comprehensive.3 Many of the firms captured in later Biddulph’s original, speculative ‘Silicon Roundabout’, surveys may have been around at earlier dates. It’s therefore very misleading to extrapolate ever- accelerating cluster growth from comparing surveys Figure 5: Still from Tech City Map Source: Tech City Map and PlayGen from 2008 and 2012. This becomes very clear when we line up the different estimates published so far, which are not only wildly different from each other, but show no continuity over time (Figure 6).

Figure 6: How many tech firms in Silicon Roundabout? Sources: Bradshaw (2008), Wired UK (2010), McKinsey and Co (2010), DueDil/TechHub (2011), Chris Orange, Tech City Map (2012), Osborne and Schmidt (2012).

SOURCE/FOCUS YEAR COUNT

Matt Biddulph 2008 15

Wired 2009 42

McKinsey/‘technology-orientated companies’ 2010 ‘Over 170’

DueDil & TechHub/‘tech startups’ 2011 107

Digital Shoreditch/digital economy firms 2011 774

Gateway to London/tech startups 2012 410

Tech City Map 2012 1153

George Osborne and Eric Schmidt/‘digital companies’ 2012 ‘Over 700’

52 53 3.3: Re-mapping the cluster Employment locations Our analysis re-maps the cluster using the Business First, we explore the location of digital economy Structure Database (bsd) and the Business Register of employment, using job density maps. Digital work is Employment Survey (bres). (See Appendix 3 for details heavily clustered within Greater London: there are of both datasets.) With Duncan Smith from ucl, we used several hotspots, running roughly in a corridor from the bres to generate exploratory maps of digital economy West End through to Inner East London, with adjoining job density across Greater London. We then identified zones in se1 and Docklands (see Figure 7). nine Inner East London wards as a ‘rough cluster’, While Inner East London is the one of the densest spanning the boroughs of , Hackney, the City parts of London’s digital economy, it needs to be seen as of London and Tower Hamlets.4 We also identified three part of the bigger ecosystem. This echoes earlier analysis ‘core wards’ – Clerkenwell, Hoxton and Haggerston. done by the Cities Institute (2011). We used the bsd to explore digital economy firm Within the digital economy, we also find good evidence counts, employment growth and cluster composition. of ‘micro-clustering’, with the ict and digital content The bsd’s great advantage is that it includes nearly all sectors sorting into different neighbourhoods (Figures 8 uk firms. The disadvantage is that it misses firms below the vat threshold, which will include many tech start- ups or firms in the pre-revenue phase. This will barely Figure 7 (top): London’s digital economy corridor. Job density 2008–10. / Figure 8 (bottom left): ICT content job densities, 2008–10 / Figure 9 (bottom right): Digital content job densities 2008–10 affect employment data (as the firms excluded tend to Source: BRES/ NOMIS. Map by Duncan Smith, CASA/ UCL be very small), but it does mean that the bsd data will underestimate the number of firms. case study 5: Santiago Santiago is Chile’s largest city, with over 35% of the population. In recent years the Providencia district has become a hotbed of tech firms, thanks to government poli- cies to import human capital. In 2000, the national economic development agency corfo rolled out a successful fdi programme, using upfront subsidies to attract firms across ict, digital content, biotech and pharmaceuticals (Agosin, 2010). In 2010, corfo launched the Start Up Chile programme in a bid to ‘convert Chile into the definitive innovation and entrepreneurial hub of Latin America’.6 The pro- gramme offers $40,000 of equity free seed capital, 1-year visa and free co-working space in Providencia. The first year saw 33 startups from 14 countries selected by an expert board; in 2012, over 650 firms are competing for 100 places. Participants are expected to network, attend local events, hold knowledge-sharing workshops and expand their businesses from a Chile base. It is too early to determine the success of the programme, but Chile has some other factors in its favour: its internet penetration rate is 37%, one of the highest in Latin America, and it has also scored highest in the Continent on the Economist Intelligence Unit’s ‘e-ready economies’ Index, 26 places higher than China and 28 places higher than India (Economist Intelligence Unit, 2010).

54 55 Figure 11: Inner East London’s digital economy: firm counts, 1997–2010 and 9). Our interviews confirm these micro-geographies, Source: BSD/Secure Data Service. Notes: ‘Inner East London’ is defined as Bishopsgate, Bunhill, Clerkenwell, Cripplegate, Haggerston, with different types of companies carefully locating Hoxton, Portsoken, Spitalfields, St Peter’s and Whitechapel wards. ‘Core wards’ are Clerkenwell, Haggerston and Hoxton. themselves within the cluster (see Chapter 4). Inner East London Core Wards YEAR Digital economy ICT Digital content Digital economy ICT Digital content Counting firms 1997 1591 348 1243 826 126 700 Next, we look at how the business base has developed. 1998 1802 508 1294 885 184 701 Figure 10 shows growth over time, for both the area as a 1999 1980 674 1306 960 220 740 whole (Bishopsgate, Bunhill, Clerkenwell, Cripplegate, 2000 2096 731 1365 1024 255 769 Haggerston, Hoxton, Portsoken, Spitalfields, St Peter’s 2001 2203 790 1413 1067 275 792 and Whitechapel) and for the three ‘core wards’ 2002 2207 758 1449 1045 262 783 (Clerkenwell, Haggerston and Hoxton). We can see rapid 2003 2600 698 1902 1164 262 902 growth in the late 1990s and mid-2000s: but the last few 2004 2539 658 1881 1176 245 931 years have seen a flattening-off as the wider economy 2005 2499 597 1902 1148 230 918 turned down. 2006 2680 597 2083 1159 228 931 Figure 11 gives some more detail. Numbers of digital 2007 2786 572 2214 1196 223 973 economy firms have essentially doubled since1997 to 2008 3246 812 2434 1440 269 1171 2010: from 1,591 to 3,289 in Inner East London, and 2009 3288 688 2600 1611 291 1320 from 826 to 1,599 in the core zone. Within this, growth 2010 3289 668 2621 1599 267 1332 is driven by digital content firms. Strikingly, these firm counts are all substantially larger than any previous estimates. The data structure and the year measured

Figure 12: Employment growth in the digital economy, 1997–2010 Source: BSD/Secure Data Service Figure 10: Digital economy firms IEL and ‘core’ wards 1997–2010 Source: BSD/Secure Data Service Digital economy ICT Digital content YEAR IEL London IEL London IEL London

4000 Firms in Inner East London Firms in core wards 1997 12,931 271,062 9,253 91,223 12,678 179,839

1998 23,488 286,027 8,725 96,224 14,763 189,803

1999 25,068 297,402 9,348 105,601 15,720 191,801

3000 2000 20,728 265,751 5,153 77,742 15,575 188,009

2001 27,013 306,545 11,943 100,076 15,070 206,469

2002 27,183 322,108 11,278 112,456 15,905 209,652

2003 36,172 384,713 13,628 125,174 22,544 259,539 2000

no. of firms 2004 43,867 406,271 19,450 128,033 24,417 278,238

2005 43,461 381,549 19,270 110,938 24,191 270,611

2006 44,110 381,662 20,245 113,642 23,865 268,020 1000 2007 43,940 371,928 19,968 102,146 23,972 269,782

2008 47,583 385,554 22,035 107,511 25,548 278,043

2009 48,577 408,448 21,034 110,241 27,543 298,207 0 2010 48,586 392,334 20,379 102,625 28,207 289,709 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

56 57 both suggest that the true current figures will be higher Job counts don’t show the concentration of employment. still. For example, analysis by DueDil/TechHub (2011) Looking at this, we can see three distinct phases of finds a very large rise in new company registrations in development in Inner East London (Figures 13–15). ec1 from 2008 to 2011. Over time, digital economy employment has taken an increasing share of local jobs. However, growth has Employment counts, density and growth been quite uneven: we can see sporadic growth between What about jobs? Looking at the counts, we can see roughly 1997 and 2001; substantial growth between 2002 that digital economy employment rose a lot faster in and 2005/6, followed by a plateau and slight decline in Inner East London than it did for the city as a whole, density from 2006–2010 (Figure 11). more than doubling between 1997 and 2010 (Figure For ict, since 2001 Inner East London has 12). As with firm counts, digital content jobs have outstripped both Greater London and the uk, where outnumbered ict. employment shares have both stayed roughly flat. The area has increased its share of London’s digital However, as with job counts, local employment shares economy jobs from about 8 per cent to over 12 per cent, a have started to fall away since 2008 (Figure 12). rise of a third since 1997. Notably, while digital economy For digital content, the story is different again. employment in Greater London fell by 16,000 during Greater London has taken a progressively higher- 2009 to 2010, it rose inside the cluster. However, the than-uk-average share of digital content jobs since numbers also show slowing jobs growth inside Inner 1997. Within the city, iel has only recently outstripped East London since 2008, with falling employment in the London average (2003). By 2005 the area had ict and steady growth in digital content. On both firm consolidated a lead in employment shares, which it has numbers and employment trends, then, the cluster is held onto since (Figure 15). consolidating its digital content character.

Figure 13: Digital economy employment shares 1997–2010 Figure 14: ICT employment shares 1997–2010 Source: BSD/Secure Data Service Source: BSD/Secure Data Service

20% 20% UK % digital economy Inner East London % digital economy Greater London % digital economy UK % ICT Inner East London % ICT Greater London % ICT

15% 15%

10% 10%

5% 5%

0 0

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

58 59 Figure 16: Breakdown of IEL ICT sector 2010 Cluster composition Source: BSD/Secure Data Service Finally, we take a more detailed look at the cluster’s industrial composition. Figures 16 and 17 provide a wholesale computer hardware wholesale electronic parts and equipment detailed cross-section for 2010. The ict subsector is other office related activities dominated by telecoms, office repair/other office, and wholesale electrical goods computer hardware consultancy (Figure 16). Of these, wholesale other office machinery the telecoms sector alone accounts for 75% of all ict telecoms jobs. Manufacturing and wholesale of ict equipment computer hardware consultancy form a pretty small slice. The digital content sector is more diverse, covering printing, publishing, music, photography and tv as well as software (Figure 17). The largest categories are software consultancy and supply, advertising, radio and tv/news and publishing. These ‘official’ industrial categories now feel slightly worn, and are notably weak on unpicking different types of digital content firms. However, our analysis lines up well with other survey data. For instance, a recent analysis of 774 firms from the Tech City Map found that nearly 16% work in digital marketing, and more than half (59%) are ‘creative tech’ companies, like 3d and animation designers, ‘sitting at

Figure 17: Breakdown of IEL digital content sector 2010 Figure 15: Digital content employment shares 1997–2010 Source: BSD/Secure Data Service Source: BSD/Secure Data Service other printing 20% ancillary printing UK % digital content Inner East London Greater London % digital content % digital content software publishing data processing

15% advertising news agency activities pre-press activities other software consultancy and supply 10% database activities photographic activities radio and tv 5%

0

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

60 61 the intersection of the technology and creative sectors’ (Star, 2011).

3.4: Summary: placing Inner East London From an international perspective, Inner East London is an inner-urban hotspot in a global city. From a local perspective, it is one of several digital economy zones in the capital, and the eastern end of a high-tech corridor running through the centre. Its combination of history (City Fringe etc.), location (next to and the City) and industry mix is unusual. Silicon Roundabout is genuinely a cluster, and it is bigger than we thought. Since the late 1990s, the area has seen a growing number of digital firms, especially in digital content: firm counts are much higher than previous estimates have suggested. Employment has also risen over the long term. However, it is not immune from wider economic trends. Since the late 2000s, though, the business base and overall job growth has flattened; only digital content activity has continued to grow.

case study 6: Multi-media Super Corridor, Malaysia The Multi-media Super Corridor (msc) is a government-designated high-tech zone, designed both to attract foreign investment and grow a domestic technol- ogy sector. Initially the corridor covered a 15-by-50km stretch from the Petronas Twin Towers to Kuala Lumpur International Airport; it has since been expanded to cover the entire Kland Valley. The Corridor’s genesis apparently lies in work by McKinsey to implement Government structural reform pledges in the early 1990s (Vicziany & Puteh, 2004). The Corridor was planned out in 1995, with administration handed to a new agency, the Multimedia Development Corporation, with an annual budget of £6m. As with Cap Digital, the mdc awards msc status to selected domestic and interna- tional companies: this brings with it a number of benefits, including 100 per cent tax exemption for up to 10 years, zero import duties on capital equipment, grants – and zero internet censorship.

62 This chapter provides an overview of the interviews we conducted with founders or senior staff, from 34 randomly sampled Inner East London firms, and 4 combines these with further insights from a number of other public and private sector stakeholders. Interviews are anonymised, and quotes are source- coded. More details of our sampling methodology are VIEWS FROM given in Appendix 1. 4.1: Firms and founders: some basics The popular image of a digital start-up is a group of INNER EAST scrappy 20-something geeky guys hunched over laptops. One characteristic certainly holds true for our sample: the vast majority are male (see Figure 18). Just under half of interviewees are in their 30s, many of them late-30s. Of the rest, around a third are in their 20s and seven LONDON are in their 40s (Figure 19). Almost three-quarters are British-born (Figure 20). Our sample is a lot less gender and culturally-diverse than other London smes: the 2010 Small Business Survey FIRMS suggests that 37 percent of London smes have a migrant partner or director, and 15.3 percent are female-led.

Figure 18: Gender of interviewees

Gender of 19% interviewee Male Female

81%

65 However, the age profile is close to analyses of Silicon 21). This is lower than DueDil, who found nearly three Valley entrepreneurs: a recent study by Wadhwa et al quarters of ‘tech start-ups’ were five or under (DueDil (2008) found the average age was 40 for men, and 41 for & TechHub, 2011); both results suggest Inner East women. Some of the older people we spoke to are dot. London firms are a lot younger than the Greater London com 1.0 or Bay Area veterans: they are on their second, SME average and the uk digital economy average third or fourth company, having picked up lessons on (7.9 and 7.6 years respectively). how to develop products and services, find customers Of the youngest firms,17 are start-ups – companies and investors, and manage the firm. less than three years old, including spin-outs from larger Our sample is also very highly educated: almost firms (following Blank, 2011). This is slightly less than everyone has a degree, and about a third have a Vandore’s survey, where 60% of respondents were in the postgraduate qualification (some but by no means start-up phase (Vandore, 2011). all in computer science). A third went to Oxbridge; All of the firms are smes or units of smes. Over half 11/36 attended Greater London universities. Also, co- are micro-businesses (with 10 employees or less). Small founder teams often had connections stretching back firms 11–50( employees) make up just under a third, to university days: and there were five medium-size businesses (Figure 22). This is very close to the average distribution for We’ve known each other for a long time, which is London smes. really important, for the trust. You need a lot of trust The bulk of the firms we visited were single when you’re setting up a business together. (e28, c26) companies (‘enterprises’, in the jargon). Six were branches or units of larger firms, often spin-outs into The profile of firms7 shows most are very young: 21 out East London; one firm had recently been acquired of 34 sites we visited were five years old or less (Figure by a much larger multinational.

Figure 19: Age distribution of interviewees Figure 20: Country of birth

Age of interviewee Interviewee is UK born 19% 30s 28% Yes 20s No 33% 40s

72%

47%

66 67 4.2: Ways of working The firms operate both on a local and global basis. Not We asked firms if they considered themselves ‘tech’ surprisingly, every firm we spoke to had some degree of companies. Strikingly, less than half (15/34) said yes – neighbourhood engagement – with the area providing and most found the question hard to answer: a whole range of benefits (see next section). However, customers are typically not in Inner East London. To be honest it’s virtually impossible to explain Most firms sell some of their wares in central and West what we do. I’ve been battling with it a while… London; others, typically older businesses, sell uk-wide we are a tech company definitely but we are also or internationally. equally a creative company. (e12, c11) N: We’ve got Europe and America, really so As predicted by our sampling frame, we found a high we call ourselves an international as opposed to proportion of firms fitting the ‘digital creative’ category. a global company. But it has been interesting that Many see ‘tech’ as a way of doing business rather than quite a few clients recently have been requesting their core function: a bigger push into Europe, and I’ve noticed that Germany is a big focus, for probably about five The measurement is the tech bit, the inspiration is the of our clients, and that’s just from the last six traditional communications consultancy bit. (e25, c23) months. (e21, c19)

We’re tech savvy in that everybody is… most Well over a third of the firms had an international people are from an engineering or a computer structure, with either units or a parent enterprise in science background. But in terms of… we probably another country – a much higher number than we see ourselves as a games company now. (e23, c21) were expecting (Figure 23). Of these, the majority had

Figure 21: Firms’ age distribution Figure 22: Firms’ size distribution

Age of site Size of the site 18% 18% we visited 1–5 Micro 6–10 Small 11+ Medium

21% 24% 62% 59%

68 69 two to four locations, although a couple were present We are an obvious springboard for most of the rest of in six or more countries. Satellite offices often run more the world. Obviously America will do the Americas, or less autonomously, tapping into local markets on the but almost anywhere else it’s going to be easier to back of core products and services: service from London because the Pacific’s so wide. (e25, c23) It’s one or two people in all of those countries. Potentially just getting business and using freelancers The internet, web-based technologies and platforms to deliver. And coming back to us for advice on make it easy to work with people in multiple locations, intellectual property and things like that … what we either through collaboration with specialists overseas, do export quite a lot of is consultancy advice, and the or through outsourcing back-office functions: code potentially, and the products that we’re building up. (e2, c1) You can find very highly skilledit people based in Russia and the Ukraine, for about a third of the price Some of this is by accident rather than design: one of the uk or even less, and they work harder, you company set up a New York office because they met a haven’t got to manage them so much because they New Yorker they wanted to work with; in another case, a can work from home over there. (E11, C10) co-founder moved to Malaysia and built a programming team there. However, often internationalisation is One six-month old start-up is already offering its strategic. One American company intends to use products in thirty different currencies, and pays a few the London base as its international headquarters, dollars per month for an American phone number that responsible for building business in Asia and Africa: redirects to the founders’ uk mobiles:

We’re sort of pretending to be in the us, the American dollars, the 888 number, but everything is still shipped Figure 23: Geography of operations from the uk. (e36, c34)

Geographic structure of Most founders operate with a global mindset, considering the firm it perfectly normal to work with staff, contacts and UK customers around the world. In Hal Varian’s term, they International are ‘micro-multinationals’ – smes reaping the benefits

41% of digitisation (Varian, 2005). However, while firms found it easy to set up supply chains and collaborations internationally, many found the prospect of expanding into international markets more challenging (see 4.4 below). 59% 4.3: The area: benefits and disadvantages What first attracted these firms to Inner East London? For older firms, the decision to locate in the area was often by chance: founders lived there or nearby, or someone they knew offered them cheap or free space.

70 71 This story was typical: helps attract and keep staff; a source of inspiration for the firm’s products; or a source of ideas and We didn’t know the area very well actually. An agent collaborators: that [we] had talked to, who by chance knew about [this co-working space], said you should check this There’s a certain artistic/hipster roots of Shoreditch, out, maybe you’ll like it. First of all, this place was and a sense that the companies around here are a little half as expensive as any serviced office. And secondly, more in touch with current trends and the cutting edge there was an article in the Economist… and we saw a little bit more? (e33, c31) that … and said, ‘well, there’s a lot going on’. It wasn’t strategic or anything. (e6, c5) You have no problem, ever, persuading someone to work here. Whereas, if we were on a Science Park in By contrast, the younger firms we talked to were making Newbury, I’m certain we wouldn’t find good calibre deliberate choices to come. developers when we needed them, or that if we could they wouldn’t want to move to where we were. So We moved here out of pressure from the [software] that’s the first thing. Apart from that, it’s kind of developers to move somewhere better. And by better, handy being close to other like-minded companies…. I think they mean somewhere which has lots of bars I actually don’t think you get many pearls of wisdom and lots of places you can eat. Most developers are in those conversations, but it just makes you feel less young, and male, and that means that they don’t cook, isolated. (e32, c30) they rarely buy fresh food. So you basically want somewhere where there’s lots of takeaway options, The area’s cafes, bars and amenities also provide what and lots of places to hang out in the evenings. That, Currid (2007) describes as ‘the social life of creativity’: more than anything, is what compels people to this a set of spaces where creative work gets done. There area. (e32, c30) is a strong element of apparent chance or serendipity in neighbourhood meetings and workflows. Firms Once in the area, firms are making very deliberate describe lots of ‘bumping into people’ in the street and choices to stay. Most firms say they still expect to be in cafes. The density of firms doing similar things in the Inner East London in five years time, citing a long list of neighbourhood and the propensity of the workforce to benefits. As might be expected, these include: socialise in bars and cafes increases the likelihood of such accidents. • Amenities and ‘vibe’ • Similar/complementary firms There’s a lot of impromptu networking here. We’ve • Branding and messaging had a lot of exposure that we wouldn’t have had if • Cheap space we hadn’t been here. (e23, c21) • Proximity to central London • Connectivity – to the rest of London and uk. I like the fact that you bump into interesting people or people that you might sort of read something that The area’s vibe has multiple meanings and benefits someone’s written online and then meet them down for different firms. It can denote a kind of ‘social at the pub. Which is nice. … when I worked in South wallpaper’ – an nice environment to be in, and which Kensington that never happened.(e8, c7)

72 73 Well-curated shared workspace encapsulates many of As one put it: these benefits. It provides hyper-local density, and thus a kind of accelerated serendipity. Firms say they have I don’t want to move anywhere else. I wouldn’t ever recruited from their shared workspace, sought help for dream of going to Soho. I would probably go kicking technical problems and advice on business development, and screaming to Clerkenwell. (e16, c14) and met investors and contacts who happened to be visiting. 4.4: Reactions to ‘Tech City’ Three contrasting messages about the Tech City strategy And as the area’s reputation has grown, so has the emerged from our interviews. First, awareness was lower branding advantage of an Inner East London address: than we’d thought, with around a third of interviews having little or no knowledge about the initiative. If you were an agency in Soho, for example, the Second, those who did have views split down the middle, assumption would be, you are a well-established, with equal numbers of positive and negative opinions. stable agency but you charge quite a lot. If you’re Of those with positive views, most welcomed the an agency here, the assumption is generally you’re attention and exposure Tech City would bring, and not as well established, you’re a bit more of a risk, the networks the initiative might foster: you’re a bit edgy, so you’re probably going to be a bit more dynamic, so you’re probably going to be able Tech City’s great. I think all of this helps to push to respond a bit faster, and you’re going to be a bit the ecosystem generally, because it gets into people’s cheaper. (e2, c1) minds … (e24, c22)

For most of our interviewees, the positives of locating in Inner East London far outweigh the negatives. In case study 7: Tel Aviv and Silicon Wadi many cases, firms couldn’t think of any downsides, or ‘Silicon Wadi’ is a stretch of Israeli coastline, centred on Tel Aviv, and populated had to be prompted. The most common complaint by high-tech companies. Israel has developed a strong digital economy since the is rising rents, the flipside of the publicity the area is 1990s, and today has 64 companies on the nasdaq, the most of any country out- attracting (see 4.6 for more on this). Other disadvantages side North America and China (Ferziger, 2011). Israel’s technology scene is highly mentioned include: export-driven: during the 1990s ict rose from 14% to 33% as a share of Israeli exports (Fontenay, 2004). There are increasingly close links between Silicon Valley Grime, ugly streetscape particularly around the and Silicon Wadi firms; a number of the country’s startups have also been acquired Old Street Roundabout; Lack of amenities. The area by Google, , EBay and Apple in recent years. caters for the needs of young men (takeaway food, The Israeli military has played a number of critical roles in the formation alcohol), but less so women, working mothers or of the country’s technology industry. After the 1967 arms embargo, the military professionals. massively invested in domestic military capabilities – with relatively small armed forces, there was particular interest in high-tech equipment, particularly in com- It is difficult to find a pair of tights or a grocery shop, munications. The military, particularly the army, has been a key customer for Israeli for example; Crime was only mentioned by a couple technology; at the same time, a number of new tech start-ups have emerged from of firms, perhaps related to local hotspots, such as army units, particularly those involved with intelligence and/or surveillance (Se- pickpockets and bike thieves operating in the Brick nor, 2009). The government has also offered a range of financial incentives, includ- Lane area. ing tax breaks and r&d funding.

74 75 It’s creating a lot of similar-minded people in the area London firms feel little connection with the Olympic as well, and all of those people can feed off each other Park, which is seen as distant, inaccessible and with no and the different ideas, the sense of community, can obvious connections to the Shoreditch community. really make each of their businesses better. (e11, c10) I think it is the Government’s way to get more money We also found some scepticism about Government into the Olympic Park without saying “we’re putting involvement: more money into the Olympic Park”. (e5, c4)

The first rule of Tech City is, you don’t talk about It feels like the kind of thing where there’d be a first- ‘Tech City.’ (s8) user disadvantage to that space. There’d be a worry that you would be moving out onto a tumbleweed Tech City is what government people call it. I don’t strewn cul-de-sac, and would be cut off from the think I’ve heard anyone call it Tech City without sort vibrancy, etc associated with this particular area. of air quotes. (e18, c16) So I suppose it will come down to financial incentives, but I don’t know whether or not that will be enough. My personal perception of Tech City is very much (e33, c31) a government jumping on the bandwagon, and sticking a label on it. (e23, c21) The Olympic Park is over three miles away from Old Street. Even if free space were offered in the Broadcast Many of the firms in this group see ministers seeking or Media Centre, some firms still worried about the personal gain from the fruits of a cluster that was perception of the area, and were concerned that clients thriving without their help. They make a clear distinction and staff wouldn’t travel there. Some of these concerns between the Government-owned Tech City brand and also applied more broadly to Stratford: ‘Silicon Roundabout’. Third, when pushed, everyone named something the Everyone who doesn’t live in Stratford is going to government could do to help (we cover these issues in hate working at an office in Stratford, because getting more detail in 4.6). The Tech City initiative thus faces a to Stratford, even with the rapid new transport…its paradox: local businesses are facing real challenges, in going to take a London-scale of transport experience areas where policymakers could arguably do more to to get there. So it’s the opposite of being able to live help. But the brand is encountering some problems with and work in the same neighbourhood as we can here. its internal audience. (e18, c16) In addition, even among business community supporters there was widespread confusion about who For us it is not an option to be based in Stratford. to turn to for help and who is in charge – some knew Because we have to be in close proximity to our about the Tech City Investment Organisation, but many clients. (e5, c4) suggested the initiative was ‘Cameron’s baby’ or similar. A minority said they might be prepared to relocate Stratford and the Olympic Park further east in future if costs were low and – crucially – The proposed spreading of the cluster eastwards raised a neighbourhood emerged with like-minded companies the most red flags among firms we spoke to. Inner East and a creative environment. This suggests that links

76 77 to the artistic community in Hackney Wick could be connectivity; and business development. Each was raised developed. However, the distance between Hackney by at least two in five of the firms we spoke to, and some Wick, and key Olympic Park sites by around half. These issues closely relate to barriers suggests a single eastern ‘hot zone’ may not easily facing high-growth firms as a whole – see Chapter2 – but emerge. We return to these issues in Chapter 5. in many cases, a digital economy twist makes it harder to There are also real fears that by concentrating its deal with. energy on the Olympic Park sites, which many see as Figure 24 lists the key issues by frequency: that is, the the main reason for the Government’s continued number of firms mentioning each. It was also clear that attention, it risks diminishing the energy of what is still two challenges stood out in terms of intensity: business a young cluster. development and skills gaps.

I think the biggest risk to it is that they’re ratcheting Mentoring and management advice too many things together. I think if it just concentrated Inner East London contains a lot of very young firms on innovating in East London, or specifically helping who need business development advice, and the need tech startups, then everything else would follow. for mentoring came up in over a third of our interviews. (e32, c30) Many firms told us in retrospect they wish they’d had someone to turn to: 4.5: Opportunities and challenges It’s become very apparent over the last few years that The thing I found the hardest, and still find hard, is what we lack is any marketing and sales knowledge. scaling. It’s very, very hard. It’s not even necessarily So we’re good at what we do, the tech side of things the financial thing, it’s more just like … building an … but we do not have very many clients, any potential organisation, just getting the right people and chains clients at the minute. (e10, c9) of command, all those things. (e12, c11) When we started the website we were focused on The main challenges facing firms are about growing, developing traffic, and building a really good site. launching or managing the business. We identified six Which is fine. But we didn’t spend enough time main challenges: mentoring and management advice; thinking about how to make our revenue. If we’d skills gaps; access to finance; workspace access and cost; spoken to someone who had some common sense, we’d have picked up the phone and tried to sell to companies and tried to sell advertising space. Figure 24: Key challenges for Inner East London firms (e11, c10)

ISSUE SET NUMBER OF FIRMS CITING AS CHALLENGE One interviewee remarked on the lack of ‘elder wisdom’ Mentoring, management advice 13 in East London compared to the us West Coast, ‘where Skills gaps 14 I’ve had my most useful conversations’. Access to finance 17 Workspace access and cost 13 It’s either being able to call someone when you’ve got Connectivity 13 a problem, you know, whether it’s, you know, a web Business development 19 server scalability problem, or whether you’re about to

78 79 raise a round of funding and you’re wondering what There just aren’t enough computer scientists in the to do about, you know, salary rises for your early uk. And we need computer scientists, we don’t need employee or issuing equity … (e18, c16) – what do they call it – ict trained people. We need real computer scientists who do software engineering Older entrepreneurs and venture capital providers and programming. No education coupled with visa in London we spoke to are often happy to help – but restrictions is not a particularly good combination. young entrepreneurs lack networking skills (s1, s4). (e6, c5) The networking culture in the area is helpful for making entrepreneurs feel less isolated, but many events are Some interviewees also voiced concerns that the unfocused and can be of limited practical help: government strategy of attracting inward investment means the top talent and ideas could be poached by large There can be sort of … an aggressive pitching foreign firms. Others cited trouble competing with large atmosphere in those. And we’re not that early stage, financial and business firms for staff. we’re not going around talking about how great it is … also we sometimes feel a bit excluded from that. Access to finance Everybody and their dog talks about social media and app development and we don’t do that. So … there’d It’s a specific skill set, raising money… it obviously be very few people who stand there and talk to us took time to actually learn … The hard work is about large scale, highly scalable business solutions. speaking to people. You just need to speak to a lot… (e6, c5) if you want angel investment, it’s a pure numbers game. You just have to speak to a lot of people to get Skills gaps funding. (e24, c22) One of the most commonly mentioned complaints is finding skilled staff: it was often cited as the top issue, A recent gla report (Rigos, 2011) suggests the equity alongside business growth. Interviewees highlight an gap for digital economy firms in London is not so much under-supply of skilled developers and specialist staff in about the ‘demand side’ – the availability of seed funding the uk, blaming ill-designed university syllabuses, and and venture capital – and more about the ‘supply side’ – a lack of understanding at all levels of the education making uk entrepreneurs more investment-ready. Is that system. Despite the large pool of skilled workers in fair? We found evidence for both demand and supply- London, some firms also complain about a lack of side problems: almost half of firms mentioned access suitable support staff. to finance issues, but in many cases it wasn’t the most Some firms look abroad to plug skills gaps – often urgent challenge. In some cases, founders haven’t needed to North America or South/East Asia. The immigration funding – drawing instead on personal wealth, contacts cap creates difficulties here. Even if firms are not hitting and networks: the limits of the cap, the perceptions and experience of bureaucracy create genuine problems: as one interviewee We’ve been getting investment from three high put it, ‘in this business six weeks is forever’ (s4). Most net worths as opposed to any funds, one guy we’ve of these companies are also too small to take advantage known for a couple of years, about a year and a half. of intra-company transfer, where rules have remained The other two are kind of contacts from one of relatively relaxed. our guys.

80 81 Q: So these are personal contacts, basically? 2011; Reed, 2010). Fewer, larger rounds of investment A: Yeah, we went into funds, we’ve been to the also mean firms can grow more smoothly and with bank but it’s just not really that doable. (e31, c29) less dilution of ownership (Reed, 2010). Rigos (2011). suggests venture funds should be a minimum of £50m, Another group had relied on bootstrapping at the and ideally £150m to allow long term, ‘deep technology’ early stages. Having survived without external funding, investments over a 10-year cycle. Of the uk’s ten they later felt unwilling to release equity in exchange Enterprise Capital Funds, only one – Passion Capital – for funding, citing conservative valuations of their specialises in the digital economy, and has a total pot of company: just £60m, closer to Rigos’ minimum. Many uk investors’ risk-aversion and lack of digital We just thought that we don’t need the funding, so economy knowledge were also major barriers for smes: we don’t need to give away half our company to get a million pounds. Let’s not bother, let’s keep doing There’s a ridiculous amount of capital sitting half a it ourselves. There was a caution around valuation mile away from here, it’s not being allocated to these levels. And just a general caution full stop that activities. Ultimately successful venture capital is not a characterised the vcs that we were talking to. finance problem, it’s a talent-spotting and technology (e26, c28) awareness, due diligence problem. (e6, c5)

For some of these firms, real or perceived difficulties In Silicon Valley you can get investment based on an attracting equity funding had driven them towards the idea. And that’s because they’re used to investing in bootstrapping route. Here there was an overlap with a tech. (e2, c1) third group, who found a number of problems accessing both debt and equity: Venture capital players we spoke to offer some agreement (s1, s2, s3, s4). They are clear that not all We’re at the classic stage where we’ve got angel firms need outside finance; although it is critical for funding pre-product, which enabled us to build scaling up – ‘jumping on the pedal’, as one put it. They the product, and start a bit of a sales pipeline. And were equally clear that funding competition is ‘brutal’ now we need a second round of funding to actually – another company told us they’d seen 1200 ideas, met develop it. If we were in the us we would probably 30–40 people and funded three. But there was also have gotten it all at once. But we’re not in the us. acknowledgement that angels and venture capitalists So we’ve had to split it up into a number of small need to understand digital better: steps. (e24, c22) Investors need to understand what tech investment The vast majority of vcs we spoke to are very is all about. It’s not about technology investment much geared towards later stage. (e23, c21) necessarily, it’s more early stage investment, equity investment, vc investment with high risk, very Two recent studies confirm some of these structural improbable returns. Understanding that needs to be problems, citing the small size of the uk and European put forward. I’ve been in vc for four years now and it’s venture sectors as one reason for those sectors’ quite hard to educate someone around this … . (s1) underperformance (Lerner, Pierrakis, Collins, & Biosca,

82 83 We found only a handful of banks, vc firms and angels This is particularly stark for companies that have been specialising in digital sectors or physically located in based in the area for five or more years. Interestingly, Inner East London. For investors seriously entering newer firms to the area often appear ignorant of the this market, physical presence in Inner East London differential between rents in Inner East London and is becoming important – practically, as a way of seeing other central London locations. Many believe the prospects, and strategically, as a way of sending a difference is now minimal. However, a recent Savills message that they’re in the area and open for business. report (2012) says Grade a rental costs in City fringe areas are £35 per square foot, compared to £60 per Workspace access and cost square foot in Soho. One reason for this could be The inevitable paradox of success, as previously that start-ups find cheaper spaces either on the end of mentioned, is the rising cost of popular neighbourhoods. leases, or by inhabiting on a flexible basis otherwise Cheap workspace is still a big draw to the area, but redundant space. around 40 percent of our interviewees were worried In popular urban neighbourhoods, there is inevitably about finding office space in the future. In most cases, upward pressure on property prices. However, a the worry was that rising rents would push start-ups number of interviewees explicitly connected the Tech out of the area. City initiative to rising rents: while they welcome the attention, they worry that landlords will exploit it to One of the disadvantages of being in an area that’s make ‘excessive’ claims. One interviewee suggested getting trendier and trendier and trendier is that the that developers and owners were increasingly looking rents are going through the roof. It’s on the edge of to the Tea Building as a model, rather than the cheaper being sustainable. (e29, c27) products that have historically characterised the area (s2). Another argued that a critical issue for the next two As the number of firms increases, the shared workspace years of the cluster would be the supply of incubator- market is thriving, with new providers entering the type spaces (s3). market (Google Campus) and existing providers expanding (Tech Hub, The Trampery, Hoxton Mix). Connectivity Pricier warehouse-style space is also provided for bigger Over a third of companies mentioned broadband or wifi companies in places like Zetland House and the Tea as an issue. We found three linked issues: public internet Building. Securing a place in shared spaces is likely to access, broadband access time, and (for some) broadband be an important issue for the next wave of start-ups. speed. For individual entrepreneurs and start-ups in their As companies outgrow such spaces, they are first days, public internet access – mainly through wifi – concerned that they may have to look beyond the is an important tool in getting work done. area due to a lack of appropriate larger floor-plate spaces – which in turn, helps raise prices at other There’s not enough cafes where you can sit down and points in the market: get free wifi.(e19, c17)

The prices are definitely going up. We’re going to Why isn’t there free wi-fi all over the area? It costs have to move soon, and it’s unlikely we can stay in virtually nothing to transmit, everybody has an iphone Clerkenwell, so we’re actively looking to go further or laptop or whatever, we are going around with east. (e26, c24) [companies] charging too much, it’s stopping people

84 85 going on the internet and using their technology. off, but respondents considered this normal in a start-up (e29, c27) environment and didn’t make a connection to the wider economic climate. As firms move into shared space or their own premises, In many cases, the main challenge was in finding long access times for new broadband links are a common a market. Some firms reported problems accessing complaint: government contracts – highlighting procurement routines they feel are pointless and onerous. Despite It’s not so much that there isn’t good broadband here, claiming to be cheaper and more creative than major it was more of the 6 weeks to 8 weeks time-lag before players, they feel locked out: it’s actually installed. (e29, c27) Of course we try and do good work, any company There was a cafe across the road, there’s the Hoxton will tell you of course we try and do good work, but Hotel [that we had to use] but it’s not a good way of no we don’t have a folder of documentation this thick doing business. You want everyone to move in and that outlines the process of how we try and ensure feel proud of their new office. (e17, c15) consistent quality of our work, because if we start to write that folder, we’d be out of our mortgages in two There is a complex set of co-ordination issues here. months’ time. (e10, c9) Landlords need to give explicit permission for new broadband connections; if landlords cannot easily be For others, the issue was scaling up for the much larger reached, this creates delays. Some connections may u.s. or Chinese markets: involve roadworks; and Internet Service Providers (isps) have to work with separate infrastructure I think, yeah, I think if we were to do America companies to actually wire up buildings. properly, it’s such a huge transition that we’d need Once connected, a third issue is bandwidth. For to have money behind us to really kind of fund some firms, especially those working in video or media, some marketing and start an office and get a base high-speed connections are critical – although notably, over there and those sort of things. (e11, c10) this was not an issue for all companies. More broadly, though, interviewees felt the lack of connectivity was I know it’s seriously difficult, I know it’s going to detrimental for an area selling itself as the digital be at least as difficult as it was starting out here capital of Europe. with no money, and I know how bloody painful that was. And I know that you can lose everything, Business growth because you can be distracted by launching in a new The biggest challenge for many firms – and the most country, and then your uk operations suffer, and frequently mentioned issue – is identifying sources you’ve got shrinking market share in the uk, you of future growth. For most firms the issue was simply try to do too much and lose everything. (e27, c25) scaling – and for the youngest firms, finding an audience, especially when the product was disruptive to existing We were struck by some interviewees’ attitude to the markets. In a few cases firms were worried about prospect of potential growth, which was less positive the recession, but this was not at the forefront of most than one might have expected. One firm now plans interviewees’ minds. In other firms people had been laid to become a £100 million company, but only after an

86 87 un-sought-for encounter with a financier who saw the potential of the service the company offers. There is a nervousness of relinquishing control of a company, and a lack of knowledge of the potential returns of doing so (40 percent of a £1 billion company is worth more than 90 percent of a £100 million company).

I’ve got advisors with companies with thousands of people and most of them say the maximum you want to go to is about 30 and after that you lose a lot of the essence about what the company is about. (e12, c11)

Some might read this as a lack of ambition – an example of the uk’s still-parochial tech industry. Or as one of our interviewees implied, it may actually indicate a generation of serial entrepreneurs in the making:

It takes different skills to invent an idea, start the business, run it, grow it, and take it global. This isn’t always the same person…which is why some many entrepreneurs like to move to exit and start again. (s6)

88 Our analysis so far has focused on the past and present of the cluster. This chapter uses our findings to develop four possible futures for the cluster. Our aim in doing 5 this is to clarify thinking about what we want from the cluster, the forces driving change, and what policy can realistically hope to achieve. FUTURE Scenario One: Go East The Inner East London cluster continues to add new jobs and firms, with a number of companies expanding into international markets and achieving global profiles. SCENARIOS As the cluster grows it expands eastwards. Two channels create this eastward momentum. First, rising property prices in Shoreditch and Clerkenwell start to price out younger, poorer firms: they gravitate to cheaper neighbourhoods such as Bethnal Green or Hackney Wick. Second, policymakers and developers succeed in generating a ‘Canary Wharf effect’ in Stratford City and key sites in the Olympic Park. Large technology firms, including international entrants, are attracted by big offices and campus-type spaces. The Media Centre also includes some incubator space, which over time draws in start-ups and smes, including micro-manufacturing firms attracted by dry lab facilities. The digital economy as a whole is a winner in this scenario, and there are no losers. Although some smaller firms are displaced from the Inner East London core, they go on to find new spaces nearby in an emerging hotspot. ‘Tech City’ boroughs and the London economy gain from a growing cluster.

Scenario Two: Upgrade The area’s current patterns of economic development continue or accelerate, with high levels of job growth and start-up activity. More firms expand into international markets, with a few becoming well-known global players. The growing profile of the area and its lead businesses attracts further overseas tech firms, investors and other services; levels of angel/vc finance rise rapidly. Developers and landlords continue to

91 supply new workspace, but rents continue to rise and Those who do best in this scenario are property owners this displaces a number of start-ups, younger or less and property developers, and large entrants to the area. successful companies. The area’s industrial mix gradually ‘Tech City’ boroughs – and London’s economy – gain shifts towards older, more established businesses, and from increased business rates, but lose as the cluster increasingly resembles a more digital Clerkenwell or breaks up. The losers are the existing community of Soho. Neighbouring areas north and east of the cluster smes, who are displaced across the city, and whose see emerging communities of start-ups, as do parts of development may suffer as the cluster dissipates. southeast and . Stratford and the Olympic Broadcast/Media centres also see some business growth, Scenario Four: Decline partly from multinational digital economy firms looking Inner East London’s digital firms fail to develop for large floor-plate spaces. successful products and services: no global players Those who do best in this scenario are larger/more emerge, and the cluster’s star wanes, outshone by other established digital economy firms, property owners, and cities. In the short term start-up activity continues, but neighbourhoods experiencing a growth in economic most firms fail to scale up, and those that do perform activity. ‘Tech City’ boroughs and the London economy – badly in the marketplace. The cachet of the area and potentially the uk – gain from a growing cluster. The diminishes. Investors become discouraged and start short-term losers are less successful smes displaced from to shift funds – both elsewhere in London, to clusters the neighbourhood. in Berlin, Paris and other European cities. Over time, firm and employment counts go flat and may even fall, Scenario Three: Corporate Takeover as existing firms lay off staff and future entrepreneurs The area’s growing profile induces a boom in speculative/ locate in more vibrant areas. Landlords and developers large-scale property development. Property market increasingly push for change of use, and many work- activity drives a number of changes in economic activity spaces are converted into residential housing. Large and industry mix. The current community of digital floor-plate sites in Stratford and the Olympic Park fail to economy smes is largely displaced, as landlords raise find long-term tech tenants, and policymakers develop rents, and as buildings are sold for consolidation into plans for other uses. larger floor-plate spaces. These firms are increasingly Those who do best in this scenario are firms in replaced by national/multinational tech firms, and other parts of London, and those in other European tech financial services companies moving north from the City. clusters. East London’s digital firms, their employees, A few high-performing smes expand into new premises. and many local services are the losers. The rate of digital economy firm growth slows rapidly. Sector employment continues to rise, largely driven by 5.1: Assessment the arrival of tech multinationals. Angels and vc finance Which of these scenarios is most desirable? Of the increasingly looks elsewhere in the city for start-up four, only the first clearly meets all the Government’s and early-stage investment. Local services in Inner stated objectives. Scenario two meets some objectives, East London move increasingly upmarket. Looking but there are winners and losers. Scenario three sees for cheaper locations, East London’s smes relocate to high-value activity typical of the City, but at the cost of a number of other areas in the city. New clusters may dispersing the cluster. Scenario 4 sees the slow death of eventually develop in these areas. Hackney Wick and the cluster. Clearly, neither of these latter two meet the Stratford pick up some of these firms. Government’s stated objectives.

92 93 How likely is Scenario one? We suggest that as the Inner core. For the Olympic Park sites, the combination of the East London cluster expands, we can expect further Olympic address, brand new space and favourable terms digital economy activity to develop in Hackney Wick, will be enough to tempt some firms in. However, it seems Stratford and in Olympic Park sites. However, there are unlikely that the Press and Media Centres will become two important reasons why this is likely to be limited. the next Silicon Roundabout. The competition from First, today’s smes almost all perceive Stratford other locations is too strong. and the Olympic Park as both disconnected and Our quantitative, qualitative and case study evidence uninteresting. Whether this is fair or not, the view that suggests that the most likely outcome is Scenario 2, a there is ‘nothing going on’ will take long-term effort to consolidation of the current cluster. In this scenario there change. In the short term, it is plausible that property are winners and losers – and tensions between different market pressures will tempt some firms to look at Government objectives emerge. In turn, that suggests Hackney Wick, immediately west of the Media Centre. Ministers need to revisit, and clarify, the current Tech The area does share many characteristics with the City strategy. Shoreditch of fifteen years ago – its artists, amenities and cheap workspace make it attractive to some, although its transport connectivity is very limited compared to rival Zone 1 locations. These issues raise a second, more fundamental problem – which is that London’s digital economy already has a number of hotspots. As our analysis in Chapter 3 makes clear, the Inner East London zone is part of a bigger digital economy corridor, and there are a number of other emerging zones. This means that comparisons with Canary Wharf are probably misleading. In the case of Canary Wharf, it was relatively easy to encourage mass migration. Financial services in London have always been highly concentrated. By the late 1980s the sector was experiencing a severe squeeze – large firms were arriving post-Big Bang, and planning restrictions in the City were very tight. Canary Wharf offered a unique opportunity for multinationals to co- locate in a brand new neighbourhood. By contrast, digital economy firms already have a number of attractive sub-markets to choose from, such as Moorgate, Borough, Covent Garden, Victoria and Paddington – with Facebook, Google and Nokia respectively locating in the latter three (Savills, 2012). For smes, Dalston is already becoming a popular location, and the Overground (East London Line) is putting large areas of within reach of the Old St

94 95 Inner East London’s digital economy has come a long way in the last fifteen years. A thriving cluster of firms has emerged, centred on Shoreditch – and our research 6 shows it is bigger than previous estimates suggest. It is an important, high-value part of the London economy.

6.1: A vision for the future CONCLUSIONS The best achievable outcome for this cluster, and for the London and uk economies as a whole, is that this trajectory is maintained, or enhanced. We share Ministers’ desire to grow the uk’s digital economy, and AND want London to play its part in this. We would like to see more high-growth firms, and more developing into international players – either in existing product and service markets, or developing niches of their own. In this scenario, London’s economy will benefit from the RECOMMEND- resulting growth in high-value economic activity. Equally, our evidence shows that firms in the area get real competitive benefits from their location, and so stand more of a chance of becoming global successes. ATIONS For these reasons this cluster deserves further support. But there are risks for government. As our review of the evidence makes clear, too much interference, or prioritising inappropriately could limit firms’ opportunities for growth.

6.2: Assessing the current approach Will the Government’s current approach deliver these outcomes? The current Tech City strategy has three broad aims. It sets out to:

• Help the existing digital sme community, and encourage new entrepreneurship; • Attract outside and foreign direct investment, especially from global tech players; • Encourage its spread eastwards to the Olympic Park and surrounding areas, post-2012.

The Government’s approach has both ‘hands on’ and ‘hands off’ elements (see our typology in Chapter 3).

97 Its first aim is very much ‘hands off’, and so is consistent the first goal of policy for the cluster should be helping with both the evidence and Ministers’ political domestic firms that generate new products and services, preferences. In practice, the Government has brought in and successfully sell them globally. a long list of policies, from tax breaks to new visa rules, This implies some change in strategy for aimed at supporting and encouraging entrepreneurs and policymakers and agencies such as tcio. They should investors by dealing with co-ordination problems and reduce the priority of attracting fdi per se, concentrate market failures. Ministers deserve credit for much of this. on targeted investments that will complement existing We make suggestions for further improvements to the firms – and increase resources devoted to helping policy mix in the next part of this chapter. domestic firms grow internationally, through export The remaining two aims, to bring in foreign support activities. investment and to seed a tech cluster in the Olympic Park are more ‘hands on’. “We have shown more than 150 senior executives The second aim, the drive to attract large foreign around Tech City, from Shoreditch to the Olympic investors to Inner East London is, in many respects, Park, this year” (tcio Impact Report, 2012) laudable. As Chapter 2 makes clear, the evidence shows that some fdi activities can complement The final aim – to encourage the spread of the tech domestic success. cluster into Hackney Wick, Stratford and the Olympic The net effects of fdi crucially depend on the type Park – is on the face of it a good one. However, our of investment, ownership structures and local firms’ extensive evidence tells us that only a limited expansion capacity to absorb knowledge spillovers. Our evidence of the cluster to this area is likely to occur. Yes, these shows Inner East London is an important, growing locations have some potential as a location for digital cluster, with a core of high-skill activities which would industry in the years to come, especially for larger benefit from increased ideas flow. However, we have firms who may have trouble finding suitable space in also found a lot of very young, relatively inexperienced Shoreditch and surrounds. Rising property prices may firms, with an evident lack of managerial and business also encourage some smaller firms into cheaper areas development experience. There is a clear risk that like Hackney Wick. without carefully planned fdi, competition effects will However, Inner East London is part of a digital swamp any spillover benefits. economy ‘corridor’, with many other ready-to-go So it is critical that current fdi policies become locations for firms looking to relocate. Our interviews much more tailored, to attract investments that are both indicated limited willingness to go further east, especially high-value, and complementary to indigenous economic into Stratford. It may take many years before these activity. Quantity is less important a success measure neighbourhoods become as attractive to digital economy than quality and fit of investment. firms as the current cluster core, if ever. The history of There is also a broader point here. Although master-planning clusters suggests the chances of success promoting fdi can have many benefits, resources spent are limited. on this might be better spent fostering the development For all of these reasons, the opportunity costs of of home-grown firms. Firms that own the ideas and the a ‘go east’ policy are high. Our evidence highlights a technology and keep their profits in the uk are likely number of priorities for London’s existing digital smes. to be far more beneficial to uk plc than foreign-owned If the overall policy objective is to grow the city’s digital firms, however successful they may be. For these reasons, economy, this is where resources should be focused first.

98 99 6.3: Recommendations: strategy internal career progression, and potentially less security. Building on current Tech City strategy, we recommend: These issues are amplified for digital economysme s. Tech start-ups are seen by many potential staff as risky. 1—Government and the gla should review and And firms tell us they tend to search for skilled hires clarify the objectives of Tech City strategy. The main (e.g. software/web developers, digital/game designers) aim of Tech City strategy should be to support the in national/international labour markets, often outside growth of digital economy smes and nurture new the eea (Americas, Asia). Official data back this up. The entrepreneurs in the existing cluster. current uk Border Agency shortage occupation list for Tier 2 includes several digital economy occupations, 2—The Tech City Investment Organisation’s including visual effects and 2d/3d animation software inward investment activities should be focused designers, compositing artists, matte painters, riggers on attracting complementary investments and the and stereo artists (uk Borders Agency, 2011). agency should boost its export promotion activities Our evidence highlights various problems with for London firms. immigration policy. Firms worry about both the immigration cap, and delays in recruitment within the 3—Government, the gla, London & Partners Tier system, typically at Tier 2 level. Changes to the and tcio should temper their efforts to attract tech post-study work route have also made it harder to recruit employers to the Olympic Park and its surrounding skilled graduates straight out of university, by restricting areas, where it distracts from the primary aim of permission to stay to those with a job offer. helping smes and nurturing entrepreneurs. In 2011–12, 20,700 Tier 2 places were made available in the uk across all sectors (not just the digital National and local policymakers also need to make economy), but only around 10,000 were taken up. This adjustments to the detailed policy mix, working with might indicate that the cap is set above labour demand. private sector players in the finance and workspace Alternatively, individual firms may be reacting to the sectors, alongside education providers and professional expectations of difficulties caused by the cap by making networks. (potentially) second-best hires within the eea. Our Two strong priorities emerged from the initial evidence supports the second interpretation. entrepreneurs that we interviewed when we asked them Our research also suggests there are two issues about the challenges they were facing. Most important when it comes to hiring within the uk. First, firms worry was business development support, followed closely by about competing with banks and new entrants for talent. recruiting skilled staff. Beyond these two priorities the Second, some companies want to hire intermediate/ most frequently cited challenges were mentoring and entry-level positions locally, for roles such as systems management advice, access to finance, workspace administrators, office managers, and receptionists – but access and cost and internet connectivity. We offer the find it hard to get suitable candidates from the local area. following recommendations to address these issues. Based on this evidence, we recommend: 6.4: Recommendations: recruitment Recruitment issues are one of the biggest concerns 4—Government speeds up Tier 2 processing – of the firms we spoke to. smes may have problems raising the target time from the current 75% in recruiting skilled staff – with their limited budgets, less four weeks or less, to 100%;

100 101 5—tcio develops a role as ‘immigration with London universities, drawing on mit’s intermediary’ for London smes – helping them MassChallenge and similar ventures; understand and move through the system – building on existing activity; 10—tcio should monitor and publish take-up of the Entrepreneur Visa in London; and tcio and 6—Government re-instates two-year post-study Government should monitor the performance of work visas for postgraduates in stem subjects; the Start Up Chile programme, consider developing a uk version. 7—tcio helps expand Silicon Milk Roundabout, the Skills Showcase and other digital economy 6.6: Recommendations: access to finance recruitment fairs, working closely with universities Government has been active in this area. Finance and local businesses; incentives and public funds make up the bulk of Tech City policies, and most were warmly welcomed in our 8—Local training providers should pilot and conversations. However, we suggest the policy mix evaluate Tech City Apprenticeships and similar could be further improved. Our research also highlights intermediary projects. some related issues for Inner East London businesses: co-ordination failures and information gaps; a lack of 6.5: Recommendations — Entrepreneurship specialist financial providers, at angel and early-stage International evidence – and London’s experience – venture capital; and an absolute gap in the level of suggest that maintaining routes into the city for local and venture capital. We also identify a need to improve international entrepreneurs is crucial. Entrepreneurs are the business-readiness and capacity of tech firms (see crucial links in the innovation chain, helping develop new mentoring, below). Fixing these issues will help London’s ideas and build the digital business base. economic development. As a recent gla report argues, Our evidence in Chapter 3 shows a rapid growth ‘start-ups in these sectors need funding if they are to stay in Inner East London’s business base. Our qualitative and contribute to economic growth in London rather research suggests the vast majority of iel businesses are than fail or move overseas.’ (Rigos, 2011). founded by British entrepreneurs. Policymakers should also move faster to open up Long term, London and the uk also need to stay innovative new finance tools, especially the crowd- open to international talent. International clusters, funding market – where companies raise debt or equity particularly Silicon Valley and Silicon Wadi/Tel Aviv, have finance through large numbers of small investors. There benefited from the presence of international migrant is great potential for digital firms to make use of equity and diasporic communities. Santiago, Chile, is currently crowd-funding. In the us, the Obama administration pursuing a cluster-building strategy based on attracting has recently formalised this market through the jobs international entrepreneurial talent. Act (ukie, 2012). By contrast, in the uk the rules remain opaque, with some firms operating in a legal grey area. Based on this evidence we recommend: The Government has promised exploratory funding for ‘non-bank lending’ channels (Breedon Review, 9—tcio should expand the annual Entrepreneurs’ 2012; Department for Business Innovation and Skills Festival – from 200 to at least 500 participants; & Treasury, 2012). But it is hard to see how this market and support business development competitions can develop without greater legal clarity.

102 103 We recommend: investment in its broadband network, over and above funds currently announced, to approach world leaders 11—Physical relocation of angels and venture capital such as South Korea. There are also persistent concerns firms into Inner East London – for example, by that the uk regulatory framework, which has focused introducing ‘finance desks’ in shared workspaces; on retail price competition, has been less successful at improving minimum service standards, encouraging 12—Banks should develop specialist digital economy investment and technological change. Disputes offerings, covering both day to day banking and over 4g roll-out are the most recent example of this, debt finance, as well as links to legal and accounting with 4g now not arriving here until 2013 (Thomas, services; 2012). us experience suggests that 4g will become an important complement to wifi, but won’t supplant it. 13—Expanding existing online/physical networks Digital economy firms will need smooth access to both for digital firms and finance providers – for instance, technologies. starting up a dedicated uk AngelList; We recommend: 14—Government should develop a second digital- focused Enterprise Capital Fund, and increasing 16—isps should try to guarantee a two-week public investment into both funds to take the pot connection time, where cabling and landlord to £150m each; permissions allow.

15—Government should develop a clear legal 17—Workspace providers should consider framework for equity crowd-funding, drawing on integrating broadband into their basic rental us legislation and experience. packages, or include permission for connection within lease agreements. 6.7: Recommendations: connectivity Our analysis suggests three linked issues for Inner East 18—gla monitors connectivity in Inner East London London firms: broadband speed (for some), broadband and other digital hotspots in the city and seeks access time, and general connectivity. For individual to ensure (possibly using the Urban Broadband entrepreneurs and start-ups in their first days, public Fund) that they have a rich network of wifi and4g internet access – mainly through wifi – is an important transmitters. tool in getting work done. As firms move into shared space or their own premises, long access times for new 6.8: Recommendations: workspace broadband links are a common complaint. For some Access to cheap workspace is critical for start-ups and firms, especially those working in video or media, high- early stage firms – in particular, well-curated shared speed connections are critical – although notably, this workspace can provide a supportive community. The may not be an issue for all companies. accelerated serendipity of shared space mirrors the wider Our findings chime with wider evidence on theuk benefits of the cluster itself. Our evidence finds high internet ‘offer’. By international standards, uk broadband levels of demand for shared space, with existing landlords speeds are not the worst, and have been improving expanding and new entrants appearing. At the same time, over time. However, Britain needs substantial future the area’s growing popularity is already putting upwards

104 105 pressure on rents, and some companies are considering angel investors and vc firms are often themselves former leaving. serial entrepreneurs – unlike the uk, where as we have In a popular area with constraints on space, these seen, the specialist tech finance scene is a great deal pressures are inevitable. Rent control might seem smaller. Only a handful of operators like Passion Capital, attractive – but simply advantages existing firms at the Seedcamp, Index Ventures and Silicon Valley Bank – and cost of future start-ups. Local planning, development now Google – provide us-style elder wisdom for Inner control and direct provision offer better ways to ensure East London’s entrepreneurs. Inner East London maintains space for business. There is clearly a need for more. However, this is not Local authorities’ financial capacity to directly provide an area where public policy can or should easily take a space varies widely, so this will not be an option for all. lead. bis has established a national business mentoring Developing new financial incentives for local authorities scheme with a target to recruit 40,000 mentors; not should also be explored by Ministers. surprisingly, the target has recently been scaled down to 26,000 (Stacey, 2012). By contrast, the gla and tcio We recommend: have taken a more hands-off role, encouraging the development of networking across Inner East London. 19—Local authorities ensure Local Plans explicitly encourage the provision of affordable and shared We recommend: workspace, supplementing National Planning Policy Framework clauses on change of use; 22—Inner East London’s existing professional networks should actively develop mentoring 20—Local and central government explore the activities and meetups for younger firms; potential for converting empty buildings that they own in East London into workspaces, tendering 23—The Tech City Investment Organisation management to professional shared space providers; should provide financial/in-kind support building on its existing Mentorship Programme. 21—Government should encourage the provision of affordable workspace. This could involve modifying 6.10: Recommendations: governance the existing Business Increase Bonus scheme – giving Tech City Investment Organisation is the main agency an additional subsidy when planning permissions for for delivery of the Tech City Strategy. tcio’s three main affordable space are granted. activities are raising fdi, export promotion and increasing funding flows by engaging with overseas venture capital 6.9: Recommendations: mentoring and management advice (Tech City Investment Organisation, 2012). tcio has also Inner East London’s digital economy is dominated by set out about establishing itself as a champion of local young firms. Many lack experience of management and start-ups and smes. business development. Our interviews often uncovered Given the complex set of issues firms face, there is a strong need for mentoring, and help with growing a clear need for a single, locally engaged champion: and the firm – but many companies had trouble accessing our interviewees had many positive things to say about this advice in the neighbourhood. By contrast, in tcio and its senior staff (s3, s4). The agency has made a established clusters like Silicon Valley, there are extensive good job of drawing attention to East London, and says professional networks for new firms to turn to. Moreover, it has ‘helped attract’ over 30 inward investments.

106 107 Our research, however, raises two challenges for Investment Scheme, and the role of shared tcio. First, as an agency of ukti, tcio’s roots are visibly workspace on start-ups’ growth. in inward investment and trade support, and this is an area where it has been very active. This is undoubtedly 27—tcio should closely monitor developments in very helpful. But our evidence shows that overseas New York and develop links with policymakers there. expansion is a critical issue for smes, and that there are some potential downsides to foreign investment, so it 6.11: A final word is essential that tcio prioritises trade support over fdi. One of the most striking characteristics of the East Further, our research identifies a number of issues where London cluster is its organic growth. It has been evolving tcio could do more. For instance, tcio’s impact report for years under the policy radar, and only now – as it makes clear that it currently spends few resources on reaches critical mass, and becomes the figurehead of mentoring and skills support. London’s digital economy – is it receiving much public There is also some confusion about which part attention. of government tcio works for, although this is partly This raises an important question for the future unavoidable with an initiative so highly prioritised by of the capital’s digital economy. What, if anything, Number 10. can government do to help? Our international case Many of these issues are not of the agency’s making. studies suggest that in some cases, government can help They are a reflection of the lack of a clear overall goal stimulate long-term development. In Silicon Valley, and the initiative’s multiple objectives. There is now for example, government defence contracts – perhaps a strong case for further clarifying the mission and unintentionally – helped turn a defence industry hotspot governance of tcio – and broadening its activity set: a into the economic powerhouse of today, A similar future Tech City champion could usefully do more, not less. dynamic is evident in Silicon Wadi, with the Israeli military playing a number of important roles. And We recommend: in New York – which shares many similarities to the uk capital – city government is now actively trying to 24—tcio becomes a quasi-independent agency with accelerate digital economy activity in Silicon Alley. its own budget, with its main goal being to help start- Our evidence tells us that artificially generating ups and smes in the area. tcio should report jointly to clusters in mature industries – as digital content and ict Number 10 and the gla; now are – is very difficult to do (Moretti, 2012). London has momentum, but does not have first mover advantage. 25—tcio should expand its efforts to help smes Getting the policy mix right is crucial. We have suggested with key issues including mentoring, immigration/ a number of policies that we believe will be helpful. recruitment support, access to finance, connectivity Long term, a sensible approach for London would and export promotion; be to promote investment in new thinking, new ideas and smart people. In part, this means maintaining 26—Number 10 and the gla should assess the public investment in digital sciences, and maintaining effectiveness of Tech City policies – for example, incentives for private investment – such as the r&d the effect of winning the LaunchPad competition credit, and recent tax breaks for video game companies. on company performance, takeup of the Enterprise It is also likely to mean developing bigger ‘innovation Investment Scheme and the Seed Enterprise competitions’, along the lines of the LaunchPad scheme.

108 109 London’s universities are another key element in this strategy. The gla and tcio need to encourage London universities’ sense of wider mission in the years ahead. All of these initiatives are enabling the real action, which takes place inside firms. The decisions they make about strategy, markets, products and services and how in turn customers and competitors respond, will determine their success, and on a more macro scale, the success of the cluster. As we have argued, policy should re- orientate to place support for firms at its centre, consider additional wider strategic initiatives that help build the conditions for success and continue to keep a close ear to the views of entrepreneurs and investors. Tech City should be about taking what Inner East London already has, and helping it get even better.

110 a1.1: Aims and approach Our research aims to understand the Inner East London digital economy cluster in detail: to locate it APPENDIX 1 in international technology space, understand the local context, identify key trends over time, and ways of working/being for today’s entrepreneurs, firms and workers. To do this, we use a mixed methods approach, PROJECT combining comparative, quantitative and qualitative elements:

• We use a series of descriptive ecosystem case studies to provide international context, drawing METHODOLOGY on existing literature and online sources; • We use microdata analysis and gis mapping to develop a detailed picture of the firms in the London digital economy, and the development of the Inner East London zone; • We use semi-structured interv iews with a random sample of firms, and with key stakeholders to understand the characteristics of the cluster from ‘street level’; • We use scenario planning and a stakeholder roundtable to develop a picture of likely futures for the cluster, and recommended changes to the strategy/ policy mix.

This combination allows us to look at the Inner East London system in context, at different spatial scales and at different points in time. Our primary point of analysis is the firm, rather than the cluster. Most importantly, by drawing on multiple sources of information, we avoid talking only to well-known London tech firms – whose experience may not be representative. As such, we should develop an unvarnished picture of the Inner East London system.

a1.2: Quantitative analysis Our quantitative research uses firm-level microdata from the uk Business Structure Database. This dataset covers almost all firms in theuk , allowing us to build detailed

113 descriptive information on the digital economy inside • We sampled five firms from outside Inner East and outside Inner East London, its development and London, from the DueDil/Tech Hub list of ‘real tech current position. We also used microdata from the 2010 startups’ – in order to compare experiences outside Small Business Survey to compare Inner East London of Inner East London. tech firms with the Greater London anduk averages. Alongside the microdata analysis we also use local We contacted firms by email, following up with further area aggregate data from the Business Response and emails/phone calls. Using a topic guide, we conducted Employment Survey (bres). Employment data from a series of semi-structured interviews, talking to firm bres are used to generate job density maps, helping us founders or to senior staff. In total, we contacted 34 firms locate the Inner East London cluster in physical space. in Inner East London and spoke to 36 people (including Mapping was done by Dr Duncan Smith at ucl’s Centre four of the Wired group). We also spoke to three firms/ for Advanced Spatial Analysis. founders outside Inner East London. All interviews were recorded, transcribed and anonymised. Outline text a1.3: Qualitative research coding was done using Dedoose. Our qualitative research is at the heart of the analysis. Firm interviews were complemented with a number There are no official business directories for Silicon of stakeholder interviews, covering key national/ Roundabout firms, but we were able to construct a sample local policymakers, finance, workspace and education of 100 firms with the help of the Tech City Map, the largest providers. and most comprehensive unofficial listing. The Tech City Map includes both well-known East London firms and newer, younger companies. We were concerned to talk not only to the well-known ‘usual suspects’, but to cover a representative sample of the whole ecosystem. The most robust way to do this is through random sampling, as this maximises the chances of picking a representative mix (as opposed to, say, trying to pick all the businesses by hand). The Tech City Map is constructed from two separate lists of software/tech start-ups and digital economy businesses, plus a number of firms who have signed up online. Working with Tech City Map, we drew a sample of 100 businesses, stratifying our sample on tech start-ups, and then did some manual cleaning to remove a small number of irrelevant firms (e.g. t-shirt printing).

We complemented our sample with two ‘control’ groups, in order to compare and contrast:

• We sampled five firms from Wired’s2009 list of ‘Silicon Roundabout’ firms – who were considered most likely to be large, established businesses;

114 115 We use the 2010 bis/dcms definition of the ‘digital economy’. This is broad-based, and includes both ict activities (such as software development) and digital APPENDIX 2 content activities (such as digital media and advertising). We have used four-digit 2003 sic codes in order to consistently analyse firm and employment data from DEFINING 1997 through to 2010. Information and communications technology (ict) sectors

30.01 Manufacture of office machinery and computers THE DIGITAL 30.02 Manufacture of computers and other information processing equipment 31.30 Insulated wire and cable 32.10 Electronic valves and tubes and other ECONOMY electronic components 32.20 Television, radio transmitters and apparatus for telephony and telegraphy 32.30 Television/radio receivers, sound or video recording or producing apparatus/rel goods 33.20 Instruments and appliances for measuring, checking, testing, navigating, other purposes 51.43 Wholesale of electrical household appliances and radio and television goods 51.84 Wholesale of computers, computer peripheral equipment and software 51.85 Wholesale of other office machinery and equipment 51.86 Wholesale of other electronic parts and equipment 51.87 Wholesale of other machinery for use in industry, trade and navigation 64.20 Telecommunications 71.33 Renting of office machinery and equipment including computers 72.10 Computer hardware consultancy 72.50 Maintenance and repair of office, accounting and computing machinery 72.60 Other computer-related activities

117 Digital content sectors

22.11 Publishing of books 22.12 Publishing of newspapers 22.13 Publishing of journals and periodicals 22.14 Publishing of sound recordings 22.15 Other publishing 22.21 Printing of newspapers 22.22 Printing not elsewhere classified 22.24 Pre-press activities 22.25 Ancillary activities relating to printing 22.31 Reproduction of sound recording 22.32 Reproduction of video recording 22.33 Reproduction of computer media 72.21 Publishing of software 72.22 Other software consultancy and supply 72.30 Data processing 72.40 Database activities 74.40 Advertising 74.81 Photographic activities 92.11 Motion picture and video production 92.12 Motion picture and video distribution 92.13 Motion picture projection 92.20 Radio and television 92.40 News agency activities

118 Good quantitative data on the London digital economy are not easy to find. Ideally, we wanted a single large data source that would give us firm-level information on APPENDIX 3 business and founder characteristics, as well as ways of working, opportunities and challenges. The sample size would also be big enough to look at Inner East London in detail. DATASETS The first type of data source is business surveys. The London Annual Business Survey, which met all these criteria, was discontinued in 2007 and has not been replaced. The 2010 Small Business Survey provides tolerable coverage at Greater London level, and is used in the analysis, but the sample is too small to use at Inner East London level. The second type of data source is large commercial business databases such as Orbis, or Companies House data, as used by DueDil/Tech Hub (DueDil & TechHub, 2011). These datasets are very large and provide a lot of firm-level information – but are often incomplete at firm level, and require substantial cleaning. Given the project timescales, this was not a realistic option – although future research could productively make use of these datasets. The third type of dataset is public microdata, such as the Business Structure Database (bsd). The bsd is drawn from Companies House and vat registration data, and as such is close to a universe of uk firms. The data are accessed through the uk Secure Data Services, and is provided a series of cross-sections from 1997 to 2010 (at the time of writing). The bsd provides information on birth and death dates, turnover, employees, location and sector. Together, these characteristics make it uniquely rich as a data resource. For the purposes of this project, its drawback is that it excludes any companies not registered for vat – which is likely to miss out a number of digital start-ups and smes in the pre-revenue phase. Manual checking by sds staff using parts of the Tech City Map confirm this tendency to undercount. Employment data are likely to be more or less unaffected, since start- ups have very low headcounts. However, firm counts will

121 be significantly different. Since we know the direction of bias in the bsd, we can say that these firm counts are likely to be substantial under-estimates. We can also say that firms not in our database in any given year are likely to enter it in later years – conditional on survival and revenue growth to the vat threshold. However, this means that changes in the trend in any given year may be the result of already-existing firms entering/leaving the bsd, rather than new firm creation/exit. For digital economy mapping, we use employment data from the Business Response and Structure Database (bres), accessed through nomis. bres is assembled using bsd microdata, and is thus fully compatible with our bsd-based analysis. Industry-consistent sic codes for bres are currently only available for the years 2008 to 2010, so we are unable to construct historic maps. Future research could use the bsds source data to build maps over much longer time periods.

122 Agglomeration economies—the economic benefits that firms obtain from being located close to each other. Angel funding—Investment in early stage companies, APPENDIX 4 often in exchange for equity ownership. Fills the gap between borrowing from friends and family and venture capital. Unlike venture capital, investors often commit their own money. GLOSSARY BIS—uk Department for Business, Innovation and Skills. Bootstrap—Scrounge, starve and generally cut costs to a minimum in a bid to get a new business off the ground, generally without recourse to funding beyond family and friends. Business Increase Bonus—allows local authorities to retain some of the uplift in business rates for a period, rather than passing the money to central government for re-allocation. Cluster—spatial grouping of inter-connected companies. DCMS—uk Department for Culture, Media and Sport. Digital content—see Appendix 2. EIS —Enterprise Investment Scheme or government project designed to help smaller higher-risk companies raise finance by offering tax breaks to investors. Entrepreneurs’ relief—allowance taxed at a reduced rate for entrepreneurs selling their business. Enterprise Capital Funds—government funding alongside private sector investment to establish funds that financesme s. FDI—foreign direct investment or overseas investment. FE—further education. GLA— or the administrative body for Greater London. ICT—Information and Communication technologies, see Appendix 2. Incubator—programmes designed to support early stage companies by offering business support services and resources. Inner East London—for the purposes of this report, nine East London wards spanning the boroughs of Islington, Hackney, the and Tower Hamlets.

125 Knowledge spillover—passing of experience or information between firms. Localisation economies—the benefits that accrue from many firms in the same industry locating close to each other. Microbusiness—company with ten employees or less. Microdata—statistical term for individual response data in surveys. NPPF—National Planning Policy Framework. Seed funding—very early stage financing for nascent companies, usually of smaller amounts and at an earlier stage in a company’s development than vc funding (see below). SEIS—Seed Enterprise Investment Scheme: offers tax incentives for investors bankrolling small businesses in the early stage. SIC codes—Standard Industrial Classification codes, used to distinguish different types of business. sic4 refers to four-digit codes, a high level of detail. SME—small and medium sized enterprises or companies. Start-ups—companies less than three years old. Tech City Investment Organisation (TCIO) — government agency leading on the development of the Inner East London technology cluster. Part of ukt1 (see below). Tier 1—the uk Government’s category for highly skilled migrants. Within this, exceptional talent places are granted to a small number of scientists and engineers. UK Innovation Investment Fund—public fund set up in 2009 to invest in technology-based businesses with high growth potential. UKTI—The uk Government agency for Trade and Investment. VC—venture capital, or financing in exchange for a percentage of the company, often to early-stage companies.

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